By Bryan Mena, CNN

Washington (CNN) — American consumers and businesses are feeling uneasy, fearing higher inflation is lurking around the corner as President Donald Trump talks massive tariffs. That’s raising questions on what America’s souring economic mood means for spending, hiring and the future of the world’s largest economy.

“The kinds of changes that are occurring under Trump are arguably unprecedented, and it’s making people very nervous,” Mark Zandi, chief economist at Moody’s, told CNN. “If confidence continues to fall for another three months, and consumers actually pack it in, then game over.”

Inflation fears, due to Trump’s tariffs, are putting America on edge, according to various surveys: Consumer confidence fell sharply in February, registering its sharpest monthly decline since August 2021, The Conference Board said Tuesday. The National Federation of Independent Business, which has been collecting data since 1973, reported its third-highest reading ever on its Uncertainty Index for January.

Pessimism is also becoming apparent on Wall Street. Investor sentiment on Tuesday shifted into “extreme fear,” which hasn’t happened since December, according to CNN’s Fear & Greed Index.

But gloomier attitudes don’t usually lead to a pullback in spending, according to economists. For instance, in June 2022, when consumer sentiment plunged to a record low as inflation reached a four-decade high, American shoppers continued to spend in the following months.

But souring attitudes this time around, driven by uncertainty sowed by the Trump administration, could actually weigh on the economy if they persist.

“It’s way too premature to conclude that recession dynamics are starting to take hold, but this could be a unique time when uncertainty does upend sentiment, and actually causes consumers to pull back,” Zandi said.

No signs of a recession yet

Consumer spending accounts for about 70% of the US economy, and retail sales account for about a third of overall spending. So if Americans continue to spend at a healthy pace, there is likely no recession taking shape.

Although there haven’t been signs of a consumer pullback, the latest data on retail spending wasn’t encouraging.

Retail sales fell 0.9% in January from the prior month, according to Commerce Department data, the first monthly decline since August 2024. Economists said the weaker-than-expected figure was likely due to unseasonably cold weather that forced shoppers to hunker down, rather than a sign of the American shopper tapping out.

The Commerce Department will release fuller figures on consumer spending Friday.

Walmart, America’s largest retailer, warned last week that its sales and profit growth could slow this year. Years of high inflation and elevated borrowing costs have strained some consumers, especially those with low incomes.

“I think the economy is weakening,” Tony James, former president of asset manager Blackstone, told CNBC Wednesday. “At the same time, I think the uncertainty out of Washington is causing businesses to slow down.”

James, who is chairman of Costco’s board of directors, pointed to rising delinquencies and the “narrowing base” of consumers driving spending, in addition to weakening consumer confidence.

But others believe Americans consumers can still power the economy with their spending in the coming months.

“The better correlation with spending is with consumer income and the overall health of the job market,” said Robert Frick, corporate economist at Navy Federal Credit Union, who said he doesn’t see a recession unfolding this year.

America’s job market overall remains in good shape, with unemployment at 4% and average hourly earnings continuing to grow, Labor Department data shows.

That bodes well for spending, but the layoffs of federal workers could spook consumers to cut back.

“When layoffs hit close to home, people start getting nervous,” Frick said.

The Trump administration, at the direction of Elon Musk’s Department of Government Efficiency, has begun to pare back the federal government’s civilian workforce of more than 3 million people. The federal civilian workforce represents less than 2% of the 170.7 million total jobs in the United States, and experts told CNN previously that those layoffs likely won’t topple the resilient US labor market.

“We do expect to see a slight rise in the unemployment rate later this year, but mostly holding steady,” said Grace Zwemmer, senior economist at Oxford Economics.

The-CNN-Wire
™ & © 2025 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.