Consumers opened their wallets some in February after a sharp reduction in spending last month as anxieties over the economy continue to swirl amid tariff rollouts and ongoing frustration with inflation.

Retail sales increased 0.2% in February after a steep drop of 1.2% in January, according to data from the Commerce Department. While spending improved from a lackluster start to the year, it was below economists’ expectations and another signal about the difficulties consumers face as they weigh the effect of tariffs on prices.

Sales increased at grocery stores, home and garden stores and online retailers, while falling at car dealerships, restaurants and on electronics. The pullbacks in nonessential areas like restaurants and airline travel signals consumers might be turning their concerns about the economy into tighter budgets.

Some economists have already dialed back predictions on spending growth this year to under 2% after the final quarter of last year finish at a 4.2% clip.

Even with mounting concerns, the labor market is still solid with low layoffs and continued growth in hiring despite a cooldown in the pace. Employers added 151,000 jobs in February and unemployment is at 4.1%. Workers are also earning pay raises that are outpacing inflation, helping them navigate higher prices.

Consumer spending and a hot labor market were able to power the economy through the post-pandemic era of uncertainty despite high interest rates. That gives some optimism that it will continue to be resilient.

“Not a great report, but one still in positive territory despite how pessimistic consumers are about the future. But the main factor in consumer spending is consumer income, and that’s growing at a good rate and had an impressive leap in January. Consumers have shown just in the recent past that despite deep worries over inflation and Covid, they’ll still spend if the dollars are there,” said Robert Frick, corporate economist with Navy Federal Credit Union.

A second straight month of spending that missed expectations comes after a series of measures of consumer attitudes that showed Americans are growing increasingly worried about the direction of the economy.

The most-recent University of Michigan’s consumer sentiment index showed another sharp decline of 11% from January and hitting the lowest level since November of 2022. The index has fallen for three consecutive months and is down 20% from December, before President Donald Trump took office. Another recent report from the Federal Reserve Bank of New York found the highest level of households expecting their finances to worsen since November 2023.

Concern about the economy has also hit Wall Street with the market entering a “correction” last week, where there is a drop of 10% from their most recent high. Investors have been in a mass sell-off for two weeks attributed almost entirely to concerns about Trump’s tariffs and resulting trade wars.

Market volatility combined with softening economic data has resulted in economic forecasts being downgraded and businesses paring back forecasts for the upcoming year. Consumer expectations for inflation increasing are also being closely watched and could pose problems. Expectations for higher prices can lead to workers demanding higher pay, forcing businesses to raise prices and creating a self-fulfilling spiral.

The uncertainty swirling around the economy has likely further cemented the Federal Reserve’s wait-and-see approach to making any changes to its benchmark interest rate at its meeting later this week. Officials have been waiting to see what impact the tariffs will have on the economy before making another cut to prevent inflation, which is still above its target of 2%, from spiking again. The Federal Open Market Committee, the Fed’s monetary policy body, meets on Wednesday and is likely to keep rates steady.

Fed chair Jerome Powell and other officials have said that despite all the recent turbulence in the markets and jitters about the direction of the economy, it is still on solid footing, and they do not need to rush to reduce rates. The Fed is trying to keep the economy on its path toward a “soft landing,” where inflation comes back down without a recession, a mission that is being tested amid trade war uncertainties and falling consumer confidence.

Have a news tip? Contact Austin Denean at atdenean@sbgtv.com or at x.com/austindenean.