How Much Longer Will Consumers Keep Spending?
Key Takeaways
The US consumer still looks healthy despite a slowdown in spending and gloomy sentiment data, analysts say.
The jobs market is holding up, household balance sheets are strong, and spending is continuing to grow.
There are still worries that tariffs, inflation, or a slowing labor market could dent consumer activity in coming months.
The US consumer has been in a bad mood—and it’s no wonder, given the threat of tariffs, a dramatic stock market selloff last month, and years of elevated inflation in the wake of the pandemic. But under the hood, analysts say household balance sheets are healthy and if President Donald Trump continues to retreat on his trade wars, that could help lift the clouds over the consumer spending outlook.
Right now, data on the labor market, consumer credit, and house balance sheets “provides a story for the consumer actually being in a very decent place to be able to weather downturns,” says Josh Hirt, senior US economist at Vanguard.
That’s good news for the economy, given that consumer activity accounts for more than two thirds of US gross domestic product. An unexpectedly resilient consumer has helped power growth and stave off a recession over the past few years.
If consumers were to falter and stop spending, the effects would be far-reaching. Measures of consumer sentiment have declined precipitously over the past few months, setting off alarm bells for market watchers and prompting questions about how much longer the engine of the US economy can continue chugging along.
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The disconnect between consumer sentiment and actual spending strength is striking. Despite pessimism in surveys, the data suggests households are still well-positioned to support growth. But sentiment often leads behavior—especially if uncertainty drags on. How long can strong fundamentals like employment and balance sheets keep consumer spending afloat if confidence continues to deteriorate?