Discretionary Spending Shows Category-Level Splits Even as Headline Sentiment Stays Flat

Aggregate consumer sentiment numbers rarely tell operators what they actually need to know. The University of Michigan's Index of Consumer Sentiment came in at 52.2 for May 2025, near multi-year lows, while the Conference Board's Consumer Confidence Index has oscillated in a similarly compressed range for most of the past six months. Traders and economists treat these as leading indicators. Retail and hospitality operators are increasingly treating them as noise.

The more useful signal is what is happening within discretionary categories, and the picture there is not uniform. Restaurant and bar spending, measured by the Census Bureau's monthly retail sales release, held at roughly flat year-over-year in the first quarter of 2025 after adjusting for menu-price inflation. That is a significant deceleration from the mid-single-digit growth rates the category posted through most of 2023. Full-service restaurants are bearing the brunt: transaction counts at chains tracked by Black Box Intelligence fell for the fourth consecutive quarter, with traffic down approximately 3 percent year-over-year in Q1. For more on the topic discussed above, see National News Desk.

Home Improvement and Apparel Moving in Opposite Directions

Home improvement is a starker case. After a prolonged pullback tied to the cooling housing market, comparable-store sales at the two dominant chains — Home Depot and Lowe's — have continued to disappoint on the transaction side even when average ticket sizes hold up. Consumers are buying when something breaks; they are deferring discretionary renovation projects. That is a meaningful distinction for suppliers and category managers trying to plan inventory through the back half of the year.

Apparel, by contrast, has shown more resilience than many analysts expected, particularly in the off-price channel. TJX Companies reported a 5 percent comparable-store sales gain in its most recent fiscal quarter and raised full-year guidance. The off-price strength reflects a familiar pattern: when confidence softens, shoppers trade down in channel rather than exit the category entirely. Full-price specialty retailers are not seeing the same dynamic and should not expect to.

The divergence matters because many business plans in these categories were built on a consensus view that sentiment would rebound in the second half of 2025 as the Federal Reserve moved toward rate cuts. That consensus has slipped. The Fed's most recent meeting minutes, released in May, showed members in no hurry to ease, citing persistent services inflation. A delayed rate-cut timeline extends the period of housing-market paralysis and keeps pressure on big-ticket discretionary purchases that consumers typically finance.

For operators, the practical read is this: category averages are masking real performance gaps between channels and price tiers. A business benchmarking itself against a headline retail sales number right now is benchmarking against a blended figure that includes both TJX outperforming and mid-market full-price retailers underperforming. The more actionable question is which specific consumer cohort you serve, how rate-sensitive their purchase decision is, and whether your channel positioning gives you any of the trade-down tailwind that off-price is currently capturing.