The American consumer, long the engine of economic growth, is shifting into a lower gear. A March analysis from TD Economics paints a sobering picture: consumer spending grew at just a 1.6% annualized rate in the first half of the year, less than half the 3.6% pace from the second half of 2024. Dramatic policy shifts on tariffs, combined with a cooling labor market and geopolitical shock, have introduced a level of turbulence that is clearly showing up in spending data.

The GDP numbers tell a parallel story. CNN Business reported that the U.S. economy grew at an annualized rate of just 0.7% in the fourth quarter, down sharply from 1.4% initially reported and a dramatic deceleration from the 4.4% rate posted in Q3. Employers shed 92,000 jobs in February as the unemployment rate ticked up to 4.4%, adding tangible anxiety to what had been a more theoretical sense of economic unease.

The slowdown is not hitting all consumers equally. Bloomberg reported that the economy's K-shaped dynamics are intensifying, with wealthier households still spending but lower- and middle-income consumers pulling back more aggressively. This bifurcation is fueling a debate among economists about whether headline spending figures mask deeper fragility in the consumer economy.

A YouGov survey on U.S. consumer spending and budgeting trends found that even high-income consumers who last year indicated they would spend more now expect a five-percentage-point decline in discretionary outlays. When affluent shoppers start pulling back, retailers across the spectrum feel the impact. The AlixPartners 2026 Global Consumer Outlook echoed these findings, noting that real consumption is flatlining and discretionary purchases are falling off across income brackets.

Looking ahead, economists are not expecting a sharp recovery. TD Economics projects that consumer spending growth will remain below 2% until the second half of 2026, when some of the current headwinds, particularly tariff-related uncertainty, may begin to abate. For retailers, the message is clear: the next two quarters will require disciplined inventory management, aggressive value positioning, and the kind of operational flexibility that separates market-share winners from the rest of the pack.