Although recent geopolitical stresses have faded, Jefferies Equity Research analysts wrote, “Inflation is starting to feature as a bigger proportion of consumers recognized higher prices this month… Notably, spending trends have clearly started to break below seasonal trends.”
The analysts went on to report that consumer sentiment may have peaked in the first quarter of 2025 and that higher prices might be affecting buyer behavior. The Jefferies findings, published July 17, covered a variety of spending sectors, including gambling.
“While still very headline driven, consumer sentiment rebounded from the recent dip amidst rising geopolitical tensions.” The report stated the consumer sentiment recorded a high in June and was still only a few points off that benchmark. “However, sentiment has been roughly range-bound since October, and it’s possible that the last few months of stagnation are beginning to have an impact on consumer behavior,” Jefferies number-crunchers mused.
They reported intensified pressure on prices, covering six of the nine retail categories covered by Jefferies. “Additionally, the remaining three categories (auto payments, food at home, and food away from home) are the ones that are most cited as being inflationary and have been for as long as we have run this survey.”
Even in categories — gasoline, health care and housing — where consumer sentiment was narrowly divided, upward price pressure was perceived. In terms of consumers reporting higher prices, housing was the number-one category.
“Despite the waffling in consumer-sentiment readings, we had been reticent to suggest there would be a near-term slowdown in spending,” Jefferies analysts wrote. However, that has changed. Now, “We might be seeing the initial signs of spending exhaustion.” Retail sales were slumping in June beyond what was attributable to seasonality.
The comparison over the past two years “doesn’t look apocalyptic, which means some of this is due to a tough compare.” But crucial high-end spending seemed to be manifesting a continued slowdown. Also, instead of trading off one purchase for another, consumers appeared to be buying less, period.
Instead of shifting toward discretionary purchases, spending was looking “even worse than staples growth … Here the weakness is much more broad-based, with the lower-income cohort posting decelerating growth … and the middle and upper-income cohorts in contraction,” read the report.
Even so, optimism among highly educated respondents remained aloft. Not so less-educated respondents. The gap between their respective outlooks was the broadest, Jefferies said, that it had ever monitored.
