Cautious Consumers Cause Earnings Slump for Discretionary Brands

Companies in the S&P 500 consumer discretionary sector are lagging behind other sectors in earnings due tohigh costs and soft demand, Bloomberg reported Friday (March 6).

While 73% of companies across sectors beat GAAP earnings estimates in the fourth quarter, only 56% of those in the consumer discretionary sector did so, according to the report.

The consumer discretionary sector’s performance by this measure was also the lowest since the first quarter of 2020, per the report.

The report attributed this slowdown to consumers being cautious about their spending, inflation remaining high, the labor market remaining uncertain, tariffs impacting companies’ gross margins in the second half of 2025, and companies being pressured to lower prices after years of increases.

Looking ahead, analysts have lowered their expectations for the consumer discretionary sector over the next 12 months, reflecting their caution about current conditions, according to the report.

The U.S. Census Bureau reported Friday that consumer spending declined by 0.2% in January compared to the previous month, though it was 3.2% higher than a year earlier.

Category-level data showed that consumer demand was uneven across retail. Traditional department stores continued to face the most pressure. Sales in that segment dropped 6% compared with December and were 8.3% lower than a year earlier.

The Bureau of Economic Analysis released data on Feb. 20 showing that discretionary goods purchases saw signs of constraint even as services, which include housing, healthcare, travel and dining, were absorbing a greater share of wallet.

Overall, the Bureau data showed that goods spending dipped 0.1% in December, the first decline in six months, while services expenditures jumped 0.7%. Durable goods proved the weakest category, falling 0.3%.

The Conference Board reported Feb. 24 that during February, consumers’ plans to buy big-ticket items over the next six months rose while their planned spending on services over that period softened somewhat but remained healthy.

“Consumer spending trends in 2026 remain focused on cheap thrills and necessary services, and away from expensive and highly discretionary activities,” the organization said in a press release.

The Conference Board also found that consumer confidence rose in February due to slight improvements in consumers’ expectations for business conditions, labor market conditions and incomes.