Higher prices are beginning to affect consumer sentiment, according to a June 18 investor note by Jefferies Equity Research. “Spending data remains strong, but did show signs of deceleration, especially in discretionary, suggesting tariffs may have reached spending patterns,” Jeffries reported.
Jefferies’s research comes at a time of intense political ferment both within and without the United States, as the analyst observed. It opened by saying that consumer sentiment had continued to climb, but that “protests and rising geopolitical risk last week coincided with a pause.”
Jefferies’s pricing and survey results also “came back much worse.” Consumers reported seeing higher prices in nine cost-of-living categories.
While consumer sentiments had been trending upward, a one percent week-over-week drop marked the latest report. “We attribute the incremental uneasiness to domestic protests and stepped-up conflict in the Middle East, citing small declines across all five sentiment questions,” Jefferies chronicled.
Simultaneously, “We anticipate limited ‘real-economy’ flow through, as consumers’ perception of personal finances remains near four-year highs.” However, Republicans, Baby Boomers, and less-educated respondents registered the largest sequential decline in satisfaction.
Other than home-cooked food, the price categories tracked by Jefferies all in came higher month over month. “The categories with the most consumers flagging higher prices included: gasoline, home furnishings, autos/payments, and clothing and accessories,” Jefferies elaborated.
Deduced from this finding was that the impact of tariffs was being either imagined or actually felt by buyers. Jefferies continued, “There has yet to be a significant impact on overall spending, but we would anticipate that consumption patterns will begin to fluctuate, as consumers navigate ‘surprise’ price increases across the basket.”
One factor propping up consumer activity is the apparent moving forward of big-ticket purchases, lest expensive consumer goods experience tariff-induced price spikes. By contrast, spending on discretionary items and even on household basics is down, especially in the higher income brackets
“That said, the overall spending picture remains healthy, with staples spending growth across consumers still at ~3% and discretionary spending still arcing higher toward its typical mid-year peak,” Jefferies clarified. It pointed out, furthermore, that the greatest spending leeway is that of low-income consumers, suggesting that their flexibility is more than that of higher-earning Americans, as they spent on basics at record levels.
Although consumer sentiment was coming out of a post-inauguration trough, Democrats felt better about the economy than Republicans. Feelings among independents were relatively the same as before.
Millennials were the most cheerful consumers. “This group set a fresh post-COVID sentiment high on the latest data,” Jefferies boffins reported.
Feelings about the economy were lower among Generations Z and X, as well as Baby Boomers. However, all were more upbeat than on “Liberation Day,” when tariffs were announced.
The better-educated the consumer, Jefferies analysts concluded, the higher their economic sentiments were, with college graduates posting their best post-election numbers. “Meanwhile,” they wrote, “the least educated consumers backslid significantly and appear to be on a much different trajectory—at least as far as attitudes are concerned.”
