Spoonerisms — named after Reverend William Archibald Spooner, who allegedly was prone to this mistake — refer to an instance in which the speaker accidentally transposes the initial letters of two or more words. For example, “trail snacks” instead of “snail tracks”, or “plaster man” for “master plan”. Spoonerisms are caused by momentary confusion, often increased by nervousness or distraction. It is likely that many consumers are also feeling confused about the future as economic policies continue to evolve — which could have knock-on effects on small and medium-sized businesses (SMBs) as well as their community financial institutions (CFIs). Consumer Spending Trending Down At the start of 2025, US consumers were buoyant about the economy, encouraged by stabilizing inflation, low unemployment, and job growth. While retail sales grew by 0.2% in February, the latest University of Michigan consumer sentiment plummeted to 57.9, its lowest point since November 2022 and well below expectations. Similarly, the Conference Board’s Consumer Confidence Index — which has a stronger correlation to consumer spending and the labor market — dropped by seven points in February, its biggest monthly decline since August 2021, and its third consecutive monthly decline. Several factors appear to be unsettling consumers, including the potential impact of tariffs on inflation, possible job losses, concerns about income prospects, geopolitical uncertainty, and recent stock market fluctuations.The upshot? Consumers of every age group are planning to cut spending across many discretionary categories, according to McKinsey’s ConsumerWise survey. Categories such as apparel, footwear, electronics, and products for the home are likely to be hit hardest. Meanwhile, spending on vacations, home improvement, and gardening supplies is due for a boost, in line with seasonal expectations. In Q1, trading down behavior remained consistent with Q4 2024, with consumers attempting to counteract high grocery prices by switching retailers and brands, adjusting quantities, and delaying purchases and payments.What This Means for SMBs ― and CFIsSMBs tend to absorb the impact of reduced consumer spending more quickly than larger firms. While the dynamics are familiar, the consequences in the current environment are worth watching:
- Margin compression and cash flow strain. Slower sales and price sensitivity can pressure liquidity, particularly for businesses already operating with limited buffers.
- Deferred investment and hiring. Uncertainty around demand often leads to postponed growth plans and a cautious approach to staffing and capital improvements.
- Increased credit vulnerability. Revenue softness may impair repayment capacity or prompt SMBs to seek more flexible loan terms.
For CFIs, this could translate into rising portfolio risk, potential increases in loan loss provisions, and a possible shift in SMB credit demand. Deposit balances may also decline as businesses draw on reserves, adding pressure to liquidity management. These pressures heighten the importance of not only monitoring risk but also actively engaging with SMB customers to help them maintain stability.What CFIs Can Do To Support Their SMB Customers While economic headwinds may tighten conditions, they also create opportunities for CFIs to demonstrate value, deepen relationships, and help SMBs stay resilient. Here are three ways CFIs can offer meaningful support:
- Offer tailored financing options. To ease the financial strain, CFIs could offer a line of credit or short-term working capital loans, advances on unpaid invoices or future credit card sales, and flexible repayment plans on existing loans.
- Provide cash flow management tools. Such services could include cashflow tracking tools providing real-time visibility of cash positions, faster payment solutions to speed up the inflow of revenue, and payroll and merchant services.
- Assist with financial management advice. One of the greatest assets CFIs have is their expertise. Sharing it with their SMB customers could prove valuable in helping them optimize budgeting and tax planning and identify potential diversification strategies and cost-cutting opportunities.
After a steady start to the year, consumers appear to be shaken by the prevailing uncertain economic conditions. While they wait for tariff battles to play out, they have expressed the intention to curb their spending. This could hurt SMBs, and CFIs should be ready to support them by offering tailored financing options, cash flow management tools, and advice.
