The US consumer, once considered unstoppable, is now showing signs of strain as economic uncertainty looms. Despite the odds of an outright recession decreasing with paused tariffs, concerns persist about the ability of consumers to prop up growth.
Consumer spending accounts for over two-thirds of the economy, making a significant pullback potentially damaging. Consumers are slowing down their spending, and their attitudes towards the economic outlook have soured in anticipation of elevated prices, slower growth, and higher unemployment.
According to Mark Zandi, chief economist at Moody’s Analytics, “The economy is really vulnerable to anything that could go wrong.” A stockpile of savings accumulated during the pandemic has largely been depleted, leaving consumers without a safety net. This has led Diane Swonk, KPMG’s chief economist, to warn about increased financial stress for households in the bottom 90%.
Credit card debt and loan delinquencies are also on the rise, particularly among poorer households. The overall delinquency rate reached its highest level since 2020, driven by student loan delinquencies.
The labor market is a key factor in consumer spending. While businesses are still hiring, layoffs are low, and unemployment has stabilized at around 4%, it’s less robust than during the pandemic. Companies are reassessing staffing needs due to slowing growth, leading to fewer job openings.
Spending is now increasing faster than income, adjusted for inflation, creating an imbalance that cannot last. Economists believe consumer spending will slow down rather than incomes rise. As pay stagnates in lower- and mid-wage jobs, it’s unclear if the lessons from the post-pandemic period will apply this time around.
Source: https://www.nytimes.com/interactive/2025/05/15/business/economy/us-economy-recession-consumer-spending.html