Americans tighten spending as economic worries grow

[UNITED STATES] Following a surge in panic buying, a growing number of Americans are tightening their budgets and adjusting to a more minimalist lifestyle, recent studies reveal. Even former President Donald Trump weighed in on the trend, suggesting the nation might benefit from embracing simplicity.

“Americans don’t need 250 pencils,” Trump remarked during an appearance on NBC’s Meet the Press. “They can have five.” A new survey from Intuit Credit Karma found that 83% of consumers say they would seriously consider cutting back on non-essential purchases if their financial circumstances worsen in the coming months.

This emerging shift in consumer habits reflects larger economic pressures, including persistently high inflation and sluggish wage growth. With the cost of necessities like groceries, housing, and healthcare climbing over the past year, many households are finding it increasingly difficult to maintain discretionary spending.

According to a separate report from Bankrate, 54% of adults plan to spend less on travel, dining out, or live entertainment this year compared to last. The survey, conducted in April, polled nearly 2,500 Americans.

“Going forward, people may not be able to absorb these higher prices,” said Ted Rossman, senior industry analyst at Bankrate. “It sort of feels like something has to give.”

While American consumers have so far remained relatively resilient — a key factor in keeping the economy out of recession — signs of strain are beginning to surface. Retail sales growth has slowed in recent months, and rising credit card delinquencies suggest many households are approaching their financial limits.

Because consumer spending makes up a significant portion of the U.S. Gross Domestic Product, economists closely monitor shifts in behavior as an early signal of broader economic health.

“Despite widespread pessimism driven by tariff hikes, consumers have continued to spend,” said Jack Kleinhenz, chief economist for the National Retail Federation. “While growth has been modest, the underlying strength of consumer spending points to a resilient economy.”

Still, Kleinhenz cautioned that the economy may be reaching an inflection point.

“Key indicators — including hiring, unemployment, spending, and inflation — are moving in the right direction, but at a slower pace,” he said in a recent statement. “There’s a sense of unease, and recession concerns are growing.”

Recent data from the Federal Reserve underscores this caution. Although job creation remains steady, wage growth has not kept pace with inflation, reducing consumers’ purchasing power. Meanwhile, higher interest rates have made it more difficult for many to afford large purchases, such as homes and vehicles.

The renewed implementation of tariffs under Trump’s administration has also contributed to declining consumer sentiment — a crucial factor in spending decisions. “When there’s this much uncertainty, people tend to become more conservative with their money,” said Matt Schulz, chief credit analyst at LendingTree.

That caution is reflected in several key sentiment indicators. The Conference Board’s Expectations Index, which gauges consumers’ short-term outlook, has fallen to its lowest level since 2011. Similarly, the University of Michigan’s consumer sentiment survey recently recorded its second-lowest reading in history, going back to 1952.

Experts point to geopolitical tensions and heightened political uncertainty in an election year as additional forces undermining consumer confidence. As the 2024 presidential race intensifies, policy debates over taxes, trade, and economic stimulus are expected to further sway household spending.

“The combination of inflation and high interest rates has pushed many households to the brink, contributing to record levels of credit card debt and driving sentiment sharply lower,” Rossman said.

The Trump administration’s move to resume collection on defaulted federal student loans adds another financial burden for many. For Americans already feeling the pinch, that could mean even less cash on hand.

According to TD Bank’s financial preparedness report, nearly half — 47% — of U.S. adults say they would not feel financially secure in the face of a sudden job loss or income disruption. Another 44% report thinking about their financial stability every day.