TD Securities analysts Oscar Munoz and Eli Nir report that US consumer momentum is weakening, with real spending barely growing into early 2026, resulting in a soft base for Q1 [1]. Real spending averaged only 0.1% month-over-month in November and December, and January saw another disappointing 0.1% gain [1]. Preliminary forecasts for February indicate a modest recovery, with control group retail sales expected to rise 0.2% month-over-month in real terms, while the Chicago Fed estimates a 0.1% contraction in real retail sales excluding autos [1].
TD Securities projects consumer spending growth to slow further to 1.8% quarter-over-quarter annualized rate in Q1, down from 2.0% in the prior quarter, though the year-on-year pace will appear stronger at 2.4% in Q1 [1]. Tax refunds are expected to support consumer outlays, but year-to-date tracking suggests this impact will be more pronounced in Q2 [1].
Downside risks are mounting, with the labor market appearing sluggish in February after a strong January. Leading indicators suggest payrolls will settle in the 0k-50k range in March [1]. Geopolitical tensions, particularly the ongoing conflict in the Middle East, are negatively affecting sentiment, and real incomes are expected to be dented in the near term due to strong inflation in March and April [1].
The resiliency of US consumers is set to be tested again, as higher gas prices and tax refunds accruing mainly to upper-income taxpayers may exacerbate the spending divide across households. Further declines in the equity market could also impact high-income consumers [1].
CONCLUSION
US consumer spending is slowing, with mounting risks from rising oil prices, a softer labor market, and geopolitical tensions. While tax refunds may provide some support in Q2, the near-term outlook remains cautious as inflation and sentiment pressures weigh on real incomes. The spending divide across households could widen, potentially impacting broader economic growth.