A slowdown in tariff-fueled spending may be the next stumbling block for the US economy

Fears of higher prices caused by President Donald Trump’s tariffs unleashed a burst of spending earlier in the year, but that’s winding down—and the forecaster for shoppers to turn thrifty could weigh on the economy in the coming months.

Retail sales rose 0.1% in April, down from the prior month’s 1.7% increase. Credit and debit card users look like they’ve been slowing their spending since late April, Bank of America said.

Card spending eased from 1.1% year-over-year growth in March to 1% year-over-year growth in the back half of April. And over the first two weeks of May, spending growth has been flat with no year-over-year increase, the bank said in a note on Thursday.

“Given that economic uncertainty remains very high amid the imposition of tariffs and corresponding price increases, we continue to keep a close eye on how the consumer is reacting,” the bank’s economists wrote, adding that they believe the trend of consumers buying ahead of tariffs had “largely run its course.”

Forecasters say that a weaker consumer could be a major pain point in the US economy in the months ahead. Consumer spending makes up over two-thirds of GDP, and has helped prop up growth in recent years.

Torsten Sløk, the chief economist at Apollo Global Management, said that a weaker consumer was among the top 10 risks he sees weighing on the US economic outlook.

“Retailers are saying prices will be moving higher over the coming quarters. That’s what everyone expects,” Sløk told Bloomberg on Tuesday. He added that higher prices could cause the Fed to keep interest rates higher for longer as the central bank keeps an eye on inflation.

“But if growth is weakening — that is the expectation from the consensus. That’s what we’re seeing in the data. Then you will have this stagflation situation,” he said, referring to a scenario where growth slows while inflation remains high.

Doug Ramsey, the CIO of The Leuthold Group, said this week that he sees the risk of a “self-fulfilling confidence collapse” in the US. He pointed to weakened consumer sentiment indicators, like higher expectations for inflation and unemployment in the next year.

Consumer expectations make up a big chunk of the economic outlook and could weigh on GDP if consumers pull back from spending. Excluding other factors, the decline in consumer expectations alone in recent months could cause real GDP growth to fall from about 3% to “essentially zero,” he estimated.

“It’s an outcome that would not merely be self-fulfilling, but self-inflicted as well,” Ramsey wrote of a potential downturn.

Pantheon Macroeconomics said it believes a slowdown in consumption could cause the economy to enter a period of “stagnation,” though the US will likely avoid a recession.

Businesses, meanwhile, are already expecting consumer demand to slow and have pulled back on hiring. Pantheon pointed to lower hiring intentions in the Fed’s regional surveys and higher-than-expected continuing jobless claims in the last week.

“A large share of these jobs likely will go as consumers’ spending swings from above-trend to below-trend in Q3, after tariff-driven price rises have kicked in. Accordingly, we continue to think that the pace of firing will rise and new hiring will decline,” Samuel Tombs, the chief US economist at Pantheon, wrote in a note on Thursday.

Forecasters have adjusted their outlooks since the US and China toned down trade tensions, and many analysts think the economy can avoid a recession in 2025. Goldman Sachs lowered its 12-month recession forecast from 45% to 35%. JPMorgan said it believed the risk of recession had dropped below 50%, but remained elevated.