The state of the U.S. consumer is…difficult to discern.

Retailers and economic data alike are painting a mixed picture of consumer demand to start 2023. Optimists and pessimists can each find reason to back up their case. Inflation and interest rates are converging to make consumers think twice about buying, but the job market remains strong, providing reliable funds to make purchases.

The latest data point to arrive this week was mostly on the gloomy side. The Consumer Confidence Index showed a decline for the second straight month in February, falling from a downwardly revised 106 in January to 102.9.

“While 12-month inflation expectations improved—falling to 6.3 percent from 6.7 percent last month—consumers may be showing early signs of pulling back spending in the face of high prices and rising interest rates,” said Ataman Ozyildirim, senior director of economics at The Conference Board. “Fewer consumers are planning to purchase homes or autos and they also appear to be scaling back plans to buy major appliances. Vacation intentions also declined in February.”

This pullback on bigger purchases is extending to all discretionary spending. As they make plans to reach consumers who may be thinking twice, retailers are parsing through “conflicting data,” as Macy’s CEO Jeff Gennette put it.

“On the surface, the consumer is in better shape than 2019,” Gennette told analysts this week. “Jobs and wages are strong, and savings levels are elevated relative to historic levels. But prices for services and goods are higher. Inflation has surpassed wage growth, and revolving credit is rising....but we believe discretionary spend will be under pressure across income tiers and expect the allocation of disposable income to continue shifting toward services and essential goods.”

Certain categories that were winners in the pandemic could see a sharp decline. Best Buy is expecting comparable sales to decline 3-6%, with the toughest period coming in the first quarter. The pullback in discretionary spend comes after a pandemic lockdown period in which many people updated their technology, as they had extra money to spend on goods from a combination of stimulus and curtailed social activities.

CEO Corie Barry laid out the data this way: “Historically strong job markets, spending continues specifically on services, even moreso than goods. Inflation might be slowing, but it still is [un]sustainably high, and it's high in some of the basics like food, fuel, and lodging.”

It all adds up to a consumer that is making tradeoffs.

“You've got an uneven and unsettled consumer who, from a confidence perspective, looking forward, is still not confident about the future,” Barry said.

Consumers may be pulling back, but they are not stopping spending altogether. There is still success to be had, but it requires being mindful of the environment and the mood. After besting its own outlook to deliver 3% net sales growth in the holiday quarter, Abercrombie & Fitch remains “cautiously optimistic,” said CFO Scott Lipesky, primarily because the job market remains strong. Yet plenty of uncertainty remains.

“On the consumer demand side, we're always looking at employment levels as well as wage levels,” Lipesky said. “Both of those things remain very strong, and that's very helpful for our customer on the discretionary side. When you think about some of this cautious optimism, we don't know what the Fed is going to do here in the U.S. and how that's going to kind of ripple through the economy as we go throughout the rest of the year. And as you watch TV or read the news every day, depending on how the winds blow, it's good or bad. So we'll see.”