While we await the annual retail sales forecast from the National Retail Federation (NRF), which we should get April 2, it’s crucial that all business owners (not just retailers) stay aware of consumer sentiment.
Happy consumers spend more money—on products and services. Chain Store Age (CSA) reports that “consumer sentiment took a big dive in March.” The University of Michigan’s Index of Consumer Sentiment dropped 11% in March to its lowest level since November 2022, making it three straight months consumer sentiment fell. Indeed, it’s down 22% from December 2024.
The big dip was in the index of consumer expectations (which measures sentiment for the next six months), which plunged 15.3% from February to March.
CSA reports that the declines in March were felt across all demographics, including age, education, income, wealth, political affiliations, and geographic regions. Joanne Hsu, the director of consumer surveys for the Index, explains, “Expectations for the future deteriorated across multiple facets of the economy, including personal finances, labor markets, inflation, business conditions, and stock markets. Many consumers cited the high level of uncertainty around policy and other economic factors. Frequent gyrations in economic policies make it very difficult for consumers to plan for the future, regardless of one’s policy preferences.”
Many of these sentiments were matched in the latest McKinsey ConsumerWise report, which found that while overall, consumers felt optimistic, “for consumers across [certain] income groups and generations, spending intentions were down across several discretionary categories.”
Over one-third of consumers surveyed “reported mixed feelings about the economy, and pessimism ticked up slightly from the [fourth quarter].” Half also said rising prices were their biggest worry. Older consumers were more concerned about inflation compared with younger ones.
But all demographics felt some impact. Gen X and Gen Z respondents say they plan to cut “spending on discretionary categories such as apparel, footwear, and electronics.” And “many Gen Z respondents, for example, felt financial strain, with fewer reporting income gains and more indicating they dipped into their savings at higher rates.”
The consumers surveyed by ConsumerWise were more optimistic than those in the Index of Consumer Sentiment. Gen X and Gen Z consumers told ConsumerWise they did intend to spend more on cruises and international flights. All age groups plan to increase their spending on home improvement and gardening supplies “as they prepare for spring.” And all consumers “planned to splurge most on restaurants and groceries.”
The drastic drop in the Index of Consumer Sentiment was driven by reawakened inflation fears. “Year-ahead inflation expectations jumped from 4.3% last month to 4.9% this month, the highest reading since November 2022 and marking three consecutive months of unusually large increases of 0.5% or more. And long-run inflation expectations surged from 3.5% in February to 3.9% in March.” Hsu says, “This is the largest month-over-month increase since 1993.”
ConsumerWise calls the decreased spending “trade-down behavior” and says it “remains consistent and pervasive.”
As economic data continues to fluctuate [and] inflation rose above economists’ expectations in January, ConsumerWise warns to “Keep a close eye on whether consumer sentiment and behavior align once again.”
Rieva Lesonsky is President of Small Business Currents, LLC, a content company focusing on small businesses and entrepreneurship. While you can still find her on Twitter @Rieva, you can also reach her @Rieva.bsky.social and LinkedIn. Or email her at Rieva@SmallBusinessCurrents.com.
Photo by Direct Media on StockSnap
