Continuing with the overarching theme of economic uncertainty, consumers are generally exercising caution in their spending habits these days.
Much of that caution has been driven in recent months by President Donald Trump’s trade policies and questions over how tariffs could impact inflation rates. That’s on top of a host of other factors, such as persistently high food prices, housing costs and geopolitical conflict, all contributing to an overall sense of “nervousness” among the average consumer in 2025, said Angie Belz, Ph.D., associate professor of management and marketing at Concordia University Wisconsin.
Initial fears of an inflation spike following Trump’s announcement of widespread tariffs in April subsided with a 90-day pause. The U.S. Consumer Price Index in June was up 2.7% from a year ago, a slight increase from 2.4% in May.
With trade deal negotiation deadlines extended twice, now to Aug. 1, uncertainty lingers for many consumers, and their spending has slowed.
“I think all of us can anecdotally say, ‘Yes, people are tightening their belts, the prices are higher,’ but the data is showing that and that people are pulling back on spending,” Belz said, especially on “big-ticket” items.
U.S. consumer spending was down 0.1% in May, led by a $49.2 billion decrease in spending on goods. Meanwhile, spending on services increased by $19.9 billion, according to the Bureau of Economic Analysis.
Earlier this month, the head of the National Retail Federation cited “prolonged uncertainty surrounding the economy, tariffs and trade policy” and consumers adopting a “wait-and-see approach” with their household budgets as contributors to a 0.33% month-over-month decrease in total retail sales (excluding automobiles and gasoline) in June.
“Economic fundamentals haven’t been disrupted yet and shoppers still have the ability to spend on priorities, but the economy is gradually slowing and there has been an impact on the psyche of consumers,” said NRF president and CEO Matthew Shay. “While passage of the ‘Big Beautiful Bill’ is clearly supportive of economic growth, unresolved and restrictive trade policies remain a significant headwind.”
Data collected by the University of Michigan bears out the effect of tariff uncertainty on the collective American psyche, with consumer sentiment plummeting 29% from December to May, underpinned by the steepest three-month percentage decline seen since the 1990 recession.
The six-month downward trend broke in June, rebounding 16% over May. However, sentiment is still down 18% from December and 11% from this time last year, hinting at a possible economic slowdown and increase in inflation on the horizon, according to the university’s latest Survey of Consumers report, released June 27.
“Consumers continue to be concerned about the potential impact of tariffs, but at this time they do not appear to be connecting developments in the Middle East with the economy,” according to the report.
While Israel’s war in Gaza is not currently seen as an immediate threat to the global economy, Belz warned of its background effect on consumers.
“Anytime there’s geopolitical conflict, people tighten their belts a little bit,” she said. “The number one concern is going to be gas prices, and then the ripple effect of gas prices.”
A recent report from Madison-based rewards app Fetch, which collects and analyzes consumer purchase data from millions of user-submitted receipts from grocers and other retailers, sheds light on just how consumers have adjusted their behavior amid tariff uncertainty.
Since March, average households are spending $20-$35, or 14%, more per week than they were last year, with trip frequency up 9% year-over-year.
“They’re spending more on key categories, like pantry and essential items while prices are stable, and buying more products in anticipation of higher prices,” the report states.
Looking for value
One trend that came out of the post-pandemic inflation surge – and is bound to continue under the current climate – is the shift toward value-driven purchases. Consumers are trading down from name brands to store brands in a variety of categories to stretch their dollar.
This shift presents an opportunity for many businesses: “Where they’re not maybe selling the higher priced items, they can make up some of those sales in volume,” said Belz.
After bringing numerous national, some high-profile, brands into its mix in recent years, Menomonee Falls-based Kohl’s Corp. is now leaning back – and hard – into its identity as a value retailer by refocusing on its private label brands. Those brands have always been popular among Kohl’s core middle-income customer base and are now in more demand than ever as shoppers look for ways to save money.
“Our middle- and low-income customers remain the most pressured,” said Kohl’s chief financial officer Jill Timm during the company’s first quarter earnings call in May. “These customers are prioritizing value and are trading down into lower price point products. The work we are doing to deliver value will help better serve these customers as they continue to be more choiceful with their purchases.”
As businesses in southeastern Wisconsin continue to navigate economic volatility, Belz recommends keeping an eye on how consumers respond to any increases in fuel cost and everyday household items and groceries – or the anticipation of those increases.
“I think other businesses can look at those trends to help them make decisions, even if they’re not in those industries,” she said. “Because if consumers are cutting back on things that they need every day, you’ve got to look at, is your product a luxury item? … how do you fit into that behavior?”
