What Happens When Consumer Frustration Boils Over

Retailers’ latest headache—shock and awe of government tariffs and layoffs—is helping drive consumer sentiment into the red.

It would be hard to come up with a set of circumstances more likely to turn consumers sour on the U.S. economy than those which have developed just since New Year’s. Whether or not a recession is in the cards this year, the evidence is clear that frustration stalks the retail aisles.

In fact, it has been building for some time. As we noted here last August, there is something of a Great Rejection developing among shoppers, manifesting in such phenomena as the “underconsumption” trend that’s found traction with Gen Z and Millennial shoppers.

This year the rallying cries have continued, including “No Buy 2025” and the Feb. 28 “Economic Blackout” day called for by The People’s Union USA, a movement advocating “economic resistance, government accountability, and corporate reform.”

As last year drew to a close, it looked like the U.S. economy might still be on a glide path toward that much-invoked soft, no-recession landing. Inflation rates had been subsiding. In spite of widespread problems with unaffordable housing and car insurance, consumer spending had been holding up.

Two months later, the narrative has turned sharply dark. Tariff talk has become tariff reality. The headlines are full of dire predictions of huge disruptions in categories like grocery produce and automobiles from Mexico to building materials and oil from Canada.

You don’t have to be an economist to understand that such headlines affect spending behavior, especially when shoppers encounter inflation in bellwether basics like eggs, which recently hit an all-time high of $8 a dozen. Producers blame the spike on bird flu, but inflation is inflation. Such sticker shocks frustrate consumers and raise suspicions of price gouging.

All of this is beginning to take a toll. Last month, the widely-followed Conference Board’s consumer confidence index clocked the steepest decline since August 2021. Consumers’ short-term outlook for the economy fell below the threshold that typically signals a recession is ahead. The Conference Board also found that the average 12-month inflation expectations surged to 6 per cent from 5.2 per cent.

Meanwhile, shoppers are continuing last year’s trend of trading down. The luxury market is sputtering and Walmart has been a beneficiary, attracting high-income shoppers with its value pricing on brands and growing reputation for quality private label goods.

Grocery shoppers have been trading down as well, with discount chain Aldi the leading beneficiary. The company has been booming, aggressively growing its fleet of stores to nearly 2,500, surpassing its nearest rival, Albertsons, with foot traffic surging in 2024’s fourth quarter by 12.3%, according to eMarketer.com.

If the economy feels wobbly to consumers, it feels even more out of kilter to veteran investors like Berkshire Hathaway CEO Warren Buffett, whose investment decisions are widely followed for clues as to his thinking about where the stock market is going next. Buffett doesn’t predict, but he has been hoarding cash and, after five years of rising stock prices, recently explained, “Often, nothing looks compelling.” In other words, the stock market is overvalued.

It makes no sense, for example, that the market capitalization of Tesla is $825 billion while Toyota, which sold six times as many cars last year as Tesla, is $295 billion. Meanwhile, the housing market—the repository of personal wealth for many Americans—has remained hobbled by high prices and mortgage rates.

While The Great Rejection is not a real thing yet, it is an idea that consumers are warming to—spend less and save more—that could be with us for some time to come.