In a note on Tuesday, economists Tim Quinlan and Shannon Grein dismissed the “false narrative” that tariffs were having a benign impact, pointing out that consumer spending data has actually been revised much lower from more upbeat earlier readings.

“It never quite rang true that consumer spending was completely unfazed by the sudden implementation of tariffs,” they wrote. “This mirage was sustained by initial estimates of GDP growth that pegged the pace of inflation-adjusted Q1 consumer spending at 1.8% (annualized); that’s three-times faster than what it turned out to be in the third estimate—just 0.5%.”

In fact, data on services spending was even more skewed to the upside, as revisions put growth at just 0.6%, down from an initial print of 2.4%.

Those trends continued into the second quarter and constitute a clear warning sign largely being overlooked, namely that households are indeed reducing their discretionary spending, according to the note.

While discretionary spending on goods has held up, spending on services is down 0.3% through May on a year-over-year basis.

“That is admittedly a modest decline, but what makes it scary is that in 60+ years, this measure has only declined either during or immediately after recessions,” Quinlan and Grein warned.

They pointed out that spending on food services and recreational services, which includes things like gym memberships and streaming subscriptions, were barely higher.

Meanwhile, transportation spending was down 1.1%, led by declines in auto maintenance, taxis and ride-sharing, and air travel, which had the steepest drop at 4.7%.

“The fact that households are putting off auto repair, not taking an Uber and cutting back or eliminating air travel points to stretched household budgets,” Wells Fargo said.

Even increases in spending on goods seem weaker than they appear, as categories like cars and appliances saw big surges that haven’t been sustained. That’s because consumers rushed to buy items before Trump’s tariffs hiked prices, pulling forward purchases to earlier in the year.

In addition, the muted inflation data appears misleading too, the economists wrote. Many businesses stockpiled extra inventory ahead of tariffs and have been able to draw on those supplies, allowing them to avoid passing on tariffs costs to consumers for now.

Trump’s on-again, off-again approach to tariffs may also be delaying those pass-throughs and even encouraging some businesses to eat the costs, especially if tariffs are seen as a temporary negotiation tactic, they added.

“Another too-good-to-be-true development with respect to tariffs is how broad measures of inflation have yet to register a worrying inflationary shock,” Quinlan and Grein said.

Others on Wall Street are less downbeat but still see tariffs weighing on the economy. Capital Economics sees tariffs causing a slowdown but not a recession, forecasting GDP growth of 1.6% this year and 1.5% next year.

JPMorgan expects growth of 1% in the third quarter, about steady with gains in the first half of the year, which saw a contraction in Q1 and a rebound in Q2.

Wells Fargo’s more contrarian view comes amid a sharp debate over the economic outlook and whether the Federal Reserve should resume rate cuts sooner rather than later.

Fed Governor Christopher Waller has pointed to weak job readings in arguing for a rate cut this month. But other policymakers prefer to wait, saying the economy has been resilient while tariffs have yet to full show up in the inflation data.

The retail sales report released on Friday showed a bigger-than-expected jump last month with broad gains. But that dataset mostly covers spending on goods.

Meanwhile, the latest consumer price index came in below expectations again, but still showed signs that tariffs were putting upward pressure on inflation as well as indications that weak demand may be limiting the ability of businesses to hike prices even higher.

“Consumer spending is simply not as sturdy as we previously thought it was or even as it was first reported to be,” Wells Fargo said. “We’ve long held the view that a stable labor market can offset tariff-induced inflation, and that may still be true and would prevent more of a recessionary impulse from ensuing. But consumers have shifted their behavior in the wake of tariffs.”