Slowing consumer demand could put pressure on jobs, investment
Writer: Mirella Franzese
April 2025 — U.S. consumer sentiment has hit a new low after four consecutive months of decline, prompting companies to prepare for hiring freezes, staff cuts, and broader cost reductions.
“This lack of labor market confidence lies in sharp contrast to the past several years, when robust spending was supported primarily by strong labor markets and incomes,” said University of Michigan’s Survey of Consumers Director Joanne Hsu on the release of the latest monthly sentiment index.
Goldman Sachs estimates that trade policy uncertainty will slow national job growth to 100,000 per month by the end of 2025 and keep U.S. business investment flat through the next four quarters.
“The employment impacts may start slowly but we would expect them to build following the upstream reaction to firms realizing slower consumer spending, on top of the weaker business fixed investment,” UBS economist Jonathan Pingle told Bloomberg.
Hiring appetite has already dipped slightly, according to the latest Invest: business sentiment survey (I:BSS), as decision-makers from Southern and Northern markets showed lower interest in growing headcount compared to the previous quarter.
READ MORE: Business leaders cautiously optimistic despite uncertainty in Q1
Retailers, for one, are already preparing for softer demand in the months ahead as 76% of Americans say they will reduce spending this year, according to Wells Fargo’s 2025 Money Study.
“It’s hundreds of billions of dollars in potentially lost spending,” Oxford Economics Chief U.S. Economist Ryan Sweet recently told the Seattle Times.
Purchasing patterns shifted notably in the first quarter of 2025, with more than three-quarters of Americans opting for lower-priced alternatives.
“Inflation in the economic environment is motivating that level of intentionality and being selective,” said Wells Fargo Head of Advice and Planning Michael Liersch in an interview with Fortune. He noted that U.S. residents are more intentional with how they spend their money now given recession fears and stock market volatility.
A new McKinsey report on first-quarter consumer sentiment also found that Americans plan to cut back on discretionary spending over the next three months, particularly in tech, retail, and travel categories compared to fourth-quarter 2024 levels.
The categories with the highest forecasted spending cuts include electronics, fashion apparel, takeout, dine-in meals, food delivery services, vacation rentals, hotel stays, and domestic and international flights.
The broader tourism, hospitality, and transportation sectors are likely to experience softer demand due to lower consumer spending as 75% of Americans have put travel plans on hold this year. Residential design and construction may also take a hit, with 39% of consumers reporting delaying home renovations for the near-future.
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