Consumer and business demand may be cracking
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Steady demand kept the economy humming for the last few years even amid recession predictions. Now there are early, tentative signs that demand from consumers and businesses may be cracking.
Why it matters: Sentiment indicators show that economic uncertainty, tariff threats and federal government cutbacks are weighing on consumer and business spending plans.
- Some companies most exposed to discretionary spending say it isn't just talk: Weak sentiment is carrying over into weaker buying.
- It is unclear whether a similar cooling of demand is underway across the economy. But the anecdotes can't be ignored, especially as the factors that previously supported spending among consumers — robust hiring and wage growth — begin to fade.
Driving the news: Three of the nation's biggest airlines — Delta, American Airlines and Southwest — warned about sluggish demand for flights. American Airlines said weaker dynamics started to appear "primarily in March."
- The fallout from federal spending cuts isn't limited to the government sector. They also spill over into less demand for private-sector goods and services, as shown by airline executives' latest comments.
What they're saying: Less government travel is weighing on business this quarter, airline executives said.
- "The government contractors, the aerospace and defense business — certainly the employees that feel threatened as to whether they're going to have a job are not out there spending money traveling," Delta CEO Ed Bastian told CNBC.
- Bastian added corporations were nervous about trade uncertainty and pulling back some on business travel.
- "We saw in February a pretty significant shift in GDP sentiment and the output and the confidence signals that we monitor," Bastian said. "We saw companies start to pull back in terms of corporate spending."
Zoom out: Smaller firms — responsible for the bulk of U.S. jobs growth — are also signaling concerns about how business will fare in the months ahead.
- "Many small firms are supported by assisting firms with government contracts. How these developments are resolved will shape the economy's future," the National Federation of Independent Business (NFIB), a lobbying group for small businesses, said in a statement.
- Trump officials have emphasized the administration's focus on small businesses. In the face of a stock market sell-off, Treasury Secretary Scott Bessent said that Wall Street would be OK and the administration was concentrated on Main Street.
What to watch: NFIB's latest small business optimism index fell again last month, though the index is still above pre-election levels.
- The underlying details of the survey had a stagflationary tone. The net share of small business owners raising prices surged 10 percentage points — the largest monthly jump since 2021.
- The share of owners who said it was a "good time" to expand their business fell by the most since the onset of the pandemic.
The bottom line: For now, the evidence of waning demand is contained to anecdotes. But an uncomfortably high share of those anecdotes point to an economy losing momentum.
