Key takeaways
In 2024, personal consumption expenditures represent nearly 68% of the nation’s GDP.
A solid job market, low unemployment and wage increases help support consumer spending and a growing economy.
One issue to watch is total U.S. credit card debt, which now tops $1 trillion, a record high.
Entering 2025, U.S consumers’ financial positions appear healthy, thanks to a combination of increasing incomes and manageable debt. Steady consumer spending growth is credited with helping the U.S. economy continue growing. In the second quarter of 2024, U.S. Gross Domestic Product (GDP) was 3%, followed by a 2.8% growth rate in the third quarter.1 The question now is whether consumers continue to have the wherewithal to maintain spending in 2025 like they did in 2024.
“The environment remains favorable, particularly on the jobs front, with the unemployment rate near 4% and employers still looking to fill jobs,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management. In addition, we’re seeing solid wage gains, which all adds up to consumers being in a good position.”
Haworth notes this doesn’t mean consumers are overdoing it. “We anticipate an active holiday shopping season, but not necessarily a barnburner.” He notes that economic data indicates an update in the personal savings rate. “That tells us consumers as a whole are paying attention to their balance sheets.”
“The environment remains favorable, particularly on the jobs front, with the unemployment rate near 4% and employers still looking to fill jobs,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management. “In addition, we’re seeing solid wage gains, which all adds up to consumers being in a good position.”
One concern is that consumers on the lower end of the income spectrum may be facing more struggles, given inflation's recent resurgence. “If you think about the impact on a low-income consumer, that’s a major concern,” says Eric Freedman, chief investment officer, U.S. Bank Asset Management. “Housing and transportation costs can make up a significant part of their budgets, which limits other types of spending.”
Haworth says there are even some cautious signs from higher income consumers. “Big box retailers, in their quarterly earnings reports, indicate that wealthy individuals are managing spending more carefully,” according to Haworth. “Some affluent consumers are moving away from more expensive name brands to instead purchase discount brands.”
In 2024’s third quarter, personal consumption expenditures represented nearly 68% of the nation’s GDP.1 Much of that spending requires financing, some for bigger ticket items like homes, automobiles and higher education and some in the form of credit card debt for day-to-day purchases.
Retail sales represent a key measure of consumer activity. In October, retail sales increased 2.8% in from year-earlier levels.2
Debt funds an increasing proportion of consumer spending. In the second quarter of 2024, total household debt in the U.S. reached a record high $17.94 trillion. This represents a 3.8% increase over the amount of debt held one year prior.3
While debt levels bear close scrutiny, they may not yet present significant concerns. “It’s constructive in the economic cycle’s later stages to see consumers reduce credit card balances,” says Haworth.
Household savings rates have fallen off from their unusual COVID-19 pandemic-era peaks, when savings were as high as one-third of disposable personal income. As of October 2024, the personal saving rate was 4.4%, a modest step-up from September after declining over eight consecutive months.4 “Something closer to 6% is considered typical,” says Haworth.
There’s only been a gradual upward trend in overall consumer borrowing. Of all major debt categories, credit card debt is growing the fastest. Total U.S. credit card debt topped $1 trillion for the first time ever in the second quarter of 2023, and increased 8.3% over the one-year period ending September 30, 2024.3
Through 2024’s second quarter, household debt service payments represented, on average, about 11% of disposable personal income. While higher than the recent low point of 8.3% in early 2021, it remains below recent peak levels in 2007 and 2008, when debt amounted to more than 13% of disposable income.5
With personal savings at reduced levels, labor market strength could be the key to continued solid economic growth. Haworth says initial weekly jobless claims provide a real-time barometer that flash potential labor market warning signs. “If claims got up over 265,000 a week, that would tell us more layoffs are occurring, which could be an early sign of labor market weakness,” says Haworth. In the most recent reading, weekly jobless claims stood at 224,000 for the week ending November 30, 2024.6 “As long as layoffs remain at comparable levels, consumers should remain confident,” says Haworth.
A healthy job market may be the biggest factor affecting continued economic growth according to Haworth. “The consumer remains the heart and soul of the U.S. economy. As long as they’re employed, they’ll spend more money. If employment declines, consumers will spend less money.”
It’s important to consider the current economic outlook as you evaluate your own portfolio of investments. Talk to your wealth planning professional to assess how your portfolio can be best positioned, keeping in mind current market dynamics and your long-term financial goals.
Consumer spending is by far the biggest driver of the economy. For example, according to the U.S. Bureau of Economic Analysis, in 2024’s third quarter, personal consumption expenditures represented nearly 68% of the nation’s Gross Domestic Product, or GDP,1 the primary measure of the size of the U.S. economy. That number demonstrates the important impact consumers have in determining whether the U.S. economy is growing or shrinking.
According to recent data, consumers are taking on an increasing amount of debt. But wages are rising as well, and savings rates have improved from recent low levels. It indicates that while there is significant consumer debt ($17.94 trillion as of September 30, 2024, according to the Federal Reserve Bank of New York), the level of debt seems manageable. According to the U.S. Federal Reserve, household debt as a percent of disposable income is roughly 11%, still below levels that topped 13% in 2008.
According to the Federal Reserve Bank of New York, total household debt now stands at $17.94 trillion. While this is a record sum, U.S. household debt as a percentage of disposable income is approximately 11%, still below the highest levels reached during the financial crisis of 2008-2009, according to the U.S. Federal Reserve. Consumers can reasonably take on debt provided they have reliable income that can be expected to continue without interruption, (i.e., no job layoff). In the current job market, with the unemployment rate at 4.2% (according to the U.S. Bureau of Labor Statistics), consumer debt is believed to be at a manageable level.
With inflation in retreat, the job market continues to draw the attention of the Federal Reserve as it recalibrates monetary policy to include interest rate cuts for the first time since 2020.
By easing monetary policy with interest rate cuts, does the Federal Reserve view the threat of recession as receding?
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