NRF CEO: Consumers Hitting Pause, Choosing Savings Over Spending

After nearly five years of sustained growth, US consumers are showing signs of caution, choosing to save rather than spend amid a climate of economic uncertainty, according to Matthew Shay, CEO of the National Retail Federation (NRF). This shift, reflected in recent retail sales figures and consumer sentiment surveys, has retailers bracing for a potentially tougher year ahead.

"We know in January, consumer's disposable income increased by about a percent, but their savings increased by more than 30%," Shay told CNBC in a recent interview. "So they had the ability to spend more, and they chose to save it."

This trend marks a significant departure from recent years, where resilient consumers propped up the US economy despite rising inflation. However, now the leaders of large companies have also said that they are starting to see a slowdown in demand, prompting those to change their outlooks for revenue. Now, businesses are grappling with high interest rates, persistent inflation and new hurdles like on-again, off-again tariffs.

That caution is now becoming more widespread and is reflected in newly released retail sales figures. Retail sales only rose 0.2% in February, significantly lower than the 0.7% economists were projecting.

A separate report, the University of Michigan's consumer sentiment index, confirms this trend. The index slumped in March to the lowest level since November 2022, citing concerns about inflation and the stock market.

"Frequent gyrations in economic policies make it very difficult for consumers to plan for the future, regardless of one’s policy preferences," said Joanne Hsu, the survey’s director.

The confluence of factors - rising anxiety and more consumers saving - is leading some observers to warn about the impact on the broader economy. The OECD recently cut the US and global economic outlooks, as President Trump's trade tariffs start to have more effect on consumers and businesses. With heightened consumer anxiety, there are some signs of trouble ahead for the US economy.

Moreover, consumer spending on durable goods like cars and appliances is surging as consumers seek to beat looming tariffs. A lot of consumers are "front-loading" spending out of a concern about potential tariff-induced price hikes, that early warning sign could then also trigger "a big drop-off" in spending.

As consumers rein in discretionary spending, companies are starting to prepare for tougher conditions. Walmart, the retail industry's leader, issued a cautious outlook for the year ahead, with the retail giant expecting sales and profits to slow this year. This marked a rare warning signal from a company that tends to thrive in weaker economies. And as a result, other retailers are expecting consumers to be more selective with their money and are focusing more on necessities.

"We don't want to get out over our skis here. There's a lot of the year to play out," Walmart’s finance chief, John David Rainey, told analysts when discussing the company’s outlook. "It’s prudent to have an outlook that is somewhat measured."

Delta CEO Ed Bastian struck a similar tone, noting that consumer confidence has weakened, leading to pullbacks in both leisure and business bookings.

Shay argues that the best way to reverse this trend is to address the economic uncertainty weighing on consumers. He points to the 2017 tax cuts as an example of a policy that boosted consumer confidence and spurred spending.

"The certainty on tax reform, extending the tax cuts, that would be very good for the consumer, very good for business," Shay says. In the meantime, the US economy will depend on the economic gyrations of the markets for some time to come.