America’s economic engine is running a little rough these days. Consumer confidence is cratering, debt burdens are growing, people are worrying more about their jobs, and they’re pulling back on some spending out of caution. While the overall fundamentals that prop up the consumer remain solid, the risks have heightened significantly. High inflation and high interest rates have contributed to vulnerabilities among consumers, making them all the more susceptible at a time when the sheer unpredictability of the Trump administration’s policies— including massive tariffs that are projected to result in higher prices—are chilling spending and investment plans.

The Consumer Confidence Dilemma

Consumer confidence is a critical indicator of economic health, and recent trends are raising alarms. According to Chris Rupkey, chief economist at FwdBonds, the consumer sees "darkening clouds for the economy ahead." This sentiment was echoed in recent economic reports. The Commerce Department reported that inflation-adjusted consumer spending rose just 0.1% in February as Americans shored up their savings accounts. Meanwhile, a separate survey showed that consumer sentiment plunged 12% in March. "And while they may not always be right, if they do not start spending again, this latest negative reading on confidence will become a reality," Rupkey added.

Consumer spending powers more than two-thirds of the nation’s economic activity; so if that engine falters, the economic consequences can start spiraling. "Consumers, they need willingness and ability," Dan North, senior economist at Allianz Trade North America, told reporters. "The willingness (consumer confidence) they don’t have; the ability (the income) is waning away."

Income and Spending Dynamics

While Friday’s Commerce Department data showed that personal income posted solid gains for the second consecutive month, real (inflation-adjusted) income after taxes is up just 1.8% year-over-year. "That’s pretty weak," North said. "It’s not zero, but it’s pretty weak." If both disposable income and confidence are decaying, drops in core spending are likely to follow, he said.

However, it remains unclear whether the tepid January and February spending were reflections of recessionary or inflationary fears or if they were merely a step back after a purchasing surge in the final months of last year, said Shannon Grein, Wells Fargo economist. "While real spending came in weak, and we had some downward revisions to the prior month’s data, I just think it’s a little too soon to write off the consumer," Grein said. Wages continue to outpace inflation, and overall income growth has been strong thanks to a still-tight labor market. However, a lot is riding on the continued health and stability of the jobs market. "That’s the big risk: Does this labor market data begin to turn in a way that causes consumers to really pull back on spending?" she said. "But the ultimate fundamental for the household sector is income, and that’s still in a decent position."

The Widening Gap in Household Finances

Still, Grein cautions, that’s not the case for all households. An ongoing theme of the post-pandemic recovery has been a widening bifurcation of American household finances. Lower-income and younger consumers are struggling more, living paycheck to paycheck and standing to face the brunt of tariff pressure, she said. Debt balances have been on the rise, along with delinquencies. "We see that lower-income and younger borrowers are driving those delinquency rates higher—they’ve maxed out," she said. However, on a macro level, the health of consumers’ mortgage loans—which are the largest component of overall US household debt—are serving as a notable offset, she added. "Mortgage delinquencies are only approaching pre-Covid levels, where they were sitting at historic lows," she said. "The equity held in the single-family housing market is still near an all-time high."

The Impact of Tariffs and Policy Uncertainty

The uncertainty surrounding President Trump’s trade policies is adding to the economic headwinds. Trump is set to deliver the latest news on his aggressive trade strategy on Wednesday at 4 p.m. ET in his first Rose Garden event at the White House. While the exact details remain unclear, the president has said he is seeking to rebalance trade agreements between the US and its global partners. However, the unpredictability of these policies is causing businesses and consumers to act cautiously. "I think the uncertainty of it just leads to more behavioral outcomes than just a simple implementation of a tariff could or would," Grein said. "The recent data are posing this question of, ‘Is this all just temporary tariff effects, where people are just trying to act on the uncertainty?’ Or is this a new sign of weakness that’s finally showing up in the data?"

Business Perspectives and Future Outlook

Victor Yarbrough, one of the brothers behind Brough Brothers Distillery, the first Black-owned bourbon distillery in Kentucky, is acutely aware of the widening economic gap. His distillery, located in Louisville’s West End, has seen an increase in food drives and more people carrying food baskets away, indicating that times are getting harder for some residents. "That’s telling me that for a lot of people—even in an economically depressed area—things are getting worse," Yarbrough said in an interview.

At the same time, Brough Brothers is in the midst of a massive expansion that includes a second, larger facility across town. However, the European Union and Canada’s retaliatory tariffs on American whiskey and bourbon have thrown their plans into disarray. Yarbrough said his company is doing everything it can to adapt but is concerned about how his customers will navigate these times if prices of many goods go up. "We’re very competitively priced, but the reality is, if people don’t have jobs, then they can’t spend," he said. "We’re not a necessity. We’re not like eggs and milk."

As America’s economic engine sputters amid rising uncertainties, the path forward remains unclear. While some indicators suggest that the economy is still on solid ground, the risks have heightened significantly. High inflation, high interest rates, and unpredictable trade policies are creating vulnerabilities among consumers, particularly those who are already struggling. The widening gap in household finances and the potential for further economic disruptions underscore the need for policymakers to address these challenges proactively. Only time will tell whether the current economic slowdown is temporary or a harbinger of more significant challenges ahead.