• Consumers are finally slowing their spending and experts say that's a warning sign of the economy.

• Americans have propped up the economy with a powerful spending spree in the last two years.

• But consumer confidence is starting to wane amid elevated inflation and a weakening job market.

Consumer spending is slowing, and it's a warning shot for the US economy as it navigates the approach to a soft or a hard landing.

Americans are showing signs of strain under a higher cost of living and a cooling job market. After a wild spending spree that propped up the economy for most of the last two years, retail sales were unexpectedly soft in April, coming in basically flat compared to the 0.4% growth economists expected for the month. Meanwhile, March retail sales were revised downward, with spending rising 0.6% instead of the initially reported 0.7%.

"The American consumer is losing some luster. The retail sales number was sluggish with a capital 'S,'" economist David Rosenberg said in a note this week. "The downward revisions to the sales numbers are an important yellow flag to macro 'perma-bulls,' Because these suggest the economy has been far less strong than previously displayed."

Rosenberg has been calling for a recession for months, predicting the economy to face a downturn later this year. A hard landing has been postponed partly because of the strength of consumer spending in 2023, he wrote previously.

Americans are showing other signs that they're struggling to keep up with the pace of inflation. A survey conducted by financial services firm Primerica found that 67% of middle-class respondents said their income was falling behind the cost of living over the first quarter. Among those people, 74% said they were pulling back on discretionary purchases, such as eating out.

Americans are also saving less, though they likely depleted their excess savings from the pandemic in March of this year. The personal savings rate slumped to 3.2% in March, according to government data, down from 5.2% a year ago.

Meanwhile, the bills are piling up for US households. Total household debt surged to a record $17.6 trillion over the first quarter, according to the New York Fed's latest Household Debt and Credit Report. Nearly 9% of credit card loans and 8% of car loans became delinquent over the first quarter, Fed data shows.

The percentage of credit card loans that were at least 90 days overdue, which qualifies as serious delinquency, rose to 10.6% in the first quarter. That's the highest 90-day delinquency rate recorded since 2012, when the job market was still reeling from the 2008 financial crisis.

Danielle DiMartino Booth, a top forecaster who's been making the case the US is already in a recession, says consumer spending has taken a hit partly due to the weakening job market. Job growth has slowed in recent months, with the US adding a softer-than-expected 175,000 jobs in April. Meanwhile, consumer confidence declined for the third month in a row, with just 12% of Americans expecting more jobs to be available in the future, according to the Conference Board's latest survey.

"Americans had been so confident that they were spending a lot on their credit cards, hoping that the income gains would follow through and allow them to spend beyond their means," Booth said in an interview with Schwab network last week. "The household is finally saying: oh wait a minute, those income gains that I've been planning for, those income gains that allowed me to buy that plane ticket when I should have mabe driven with the family on spring break, I shouldn't have spent that money."

The US hasn't entered a recession, but fears of a downturn have been rising as interest rates look poised to stay higher for longer. The New York Fed sees a 50% chance that the economy will tip into recession by April 2025.

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