TD Securities’ Oscar Munoz and Eli Nir highlight that US consumer momentum is weakening, with real spending barely growing into early 2026 and creating a soft base for Q1. They project slower quarterly consumption growth but a firmer year-on-year pace, with tax refunds helping more in Q2. Rising Oil and gasoline prices, softer labor markets and geopolitical tensions are seen weighing on confidence and real incomes.

US consumption slows as risks rise

"Recent momentum in consumption has been cooling. Real spending averaged only 0.1% m/m in Nov/Dec—creating a weak base effect for 26Q1. This was further exacerbated by another disappointing 0.1% gain in real spending for January."

"February is only looking slightly better: our preliminary forecast for retail sales is pointing to a modest recovery in control group sales at 0.2% m/m in real terms. The Chicago Fed is also estimating a 0.1% contraction in real retail sales ex-auto."

"We are now projecting growth in consumer spending to slow further to 1.8% q/q AR in Q1 from 2.0% in the prior quarter. The y/y pace will look better with spending rising 2.4% in Q1. We still expect tax refunds to buttress consumer outlays, however ytd tracking suggests this will be more of a story for Q2."

"Downside risks are also starting to mount. The labor market looked sluggish in Feb after a strong Jan, and leading indicators suggest payrolls will settle in the 0k-50k range in March. Moreover, the ongoing conflict in the Middle East is already hitting sentiment, and real incomes will be dented in the near term owing to strong inflation in Mar and Apr."

"The resiliency of the US consumer is about to be tested again. Higher gas prices and refunds accruing to upper-income taxpayers will exacerbate the spending divide across households. Though further equity-market declines could also impact high-income consumers."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)