Economic Pulse Check: Data Signals Caution

February's early economic indicators are flashing yellow

The jobs report delivered 151,000 new positions against expectations of 170,000, with unemployment ticking up to 4.1%. The sectoral breakdown reveals healthcare (+52,000), financial services (+21,000), and warehousing (+18,000) growth, while retail shed 6,000 jobs and federal employment dropped by 10,000.

Consumer spending fell 3.4% year-over-year in February. Even adjusted for Leap Year effects, spending was essentially flat, with a concerning one-day collapse on February 28th where debit card sales plummeted 10.7% and credit sales fell 6.2%. Meanwhile, the Consumer Confidence Index dropped to 98.3 from January's 105.3—the largest monthly decline in over four years.

The Tariff Inflation Paradox

Potential tariffs could add 0.5-2.2 percentage points to inflation (depending on how sweeping they end up being) but the mere threat creates pressure regardless of implementation. When businesses hear about potential 60% tariffs, they act preemptively, stockpiling inventory, building cushions into pricing models, and pulling forward purchases.

During previous tariff threat cycles, import surges appeared 2-3 months before anticipated implementation dates. In Q4 2024, container shipping rates jumped 18% despite no actual tariff changes. A Cornell study found durable goods prices rose an average of 0.4% following tariff announcements—before implementation. The February decline in appliance inventories (down 6.2% month-over-month) suggests this pattern is repeating.

This expectation-reality feedback loop explains why inflation expectations jumped from 5.2% to 6% in February. When people expect inflation, they adjust their actions—accelerating some purchases, demanding higher wages, and raising prices preemptively—thereby creating the very inflation they feared.

Restaurant Industry: Unit Mix Imbalance

The National Restaurant Association's 2025 report shows modest but consequential shifts in restaurant unit composition since 2019—Fine Dining (8% to 6%), Casual Dining (32% to 29%), Fast Casual (21% to 24%), and QSR (39% to 41%). While these changes appear incremental nationally, they've created significant supply-demand imbalances that vary dramatically by trade area. As consumer behavior normalizes to pre-pandemic patterns, expect intensifying pressure on same-store sales performance, particularly in oversaturated QSR markets and underserved full-service areas.

Regional Impact Variations

The economic headwinds won't hit all regions equally:

Most Vulnerable:

• Manufacturing-heavy Midwest states facing tariff impacts

• Federal government-dependent regions (DC, Maryland, Virginia)

• Luxury tourism destinations as discretionary spending pulls back

More Resilient:

• Texas and the Southeast with population growth and business relocations

• Healthcare hubs (Boston, Minneapolis, Rochester MN)

• Agricultural regions benefiting from stable food demand

The 10,000 federal job cuts in February represent concentrated impact in specific communities, with each federal job supporting approximately 1.6 additional private sector positions through the multiplier effect.

The Path Forward

January data shows a dangerous divergence: PCE inflation at 2.5% while consumer spending dipped by 0.9%—creating a challenging economic environment that edges toward stagflation.

Three key takeaways emerge:

1. Growth is slowing but not collapsing. The 2.3% GDP forecast for 2025 remains achievable, but risks are to the downside.

2. Consumer behavior is changing rapidly. The spending pullback suggests households are preparing for tougher times.

3. Sectoral divergence will intensify. Healthcare, necessities, and affordable luxuries will likely outperform discretionary big-ticket items.

The PCE spending data for February (expected March 29th) will be critical. If spending declines for a second consecutive month, expect downward GDP revisions and increased recession talk.

The data—not narratives—will tell the real story. And currently, that data signals caution, regional divergence, and changing consumer behavior favoring value over luxury.

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