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.
Impressive U.S. economic growth is a key 2024 storyline, and consumers are at the story’s core. Consumer spending drove solid, second quarter Gross Domestic Product (GDP) growth of 3% (annualized), nearly double the rate of first quarter growth.1
“Coming into 2024, there were concerns about the consumer’s ability to maintain healthy spending levels,” says Rob Haworth, senior investment strategy director at U.S. Bank Asset Management. “But that hasn’t happened.” Retail sales, a primary measure of consumer activity, increased 2.3% for the three-month period ending in August. Sales rose 2.1% from year-earlier levels.2
“Consumers are in a good spot and behaving well,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management, referring to individuals spending prudently to avoid serious financial difficulties. “We may not see massive acceleration in consumer spending, but we don’t need that to keep the economy on track.”
“Consumers are in a good spot and behaving well,” says Haworth, referring to individuals spending prudently to avoid serious financial difficulties. “We may not see massive acceleration in consumer spending, but we don’t need that to keep the economy on track.”
How long can consumers continue fueling economic growth?
In 2024’s second 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.
An increasing proportion of spending is funded by consumer debt. In the second quarter of 2024, total household debt in the U.S. reached a record high $17.8 trillion. This represents a 4.3% increase over the amount of debt held one year prior.3
While debt levels bear close scrutiny, they may not yet present significant concerns. “Even with low savings rates, in August, we saw revolving credit decrease from year earlier levels,”4 says Haworth. “It’s constructive in the economic cycle’s later stages to see consumers reduce credit card balances.”
Household savings rates have fallen off from their unusual COVID-19 pandemic-era peaks in early 2020, when they reached a level of close to one-third of disposable personal income. As of August 2024, the personal saving rate was 4.8%, holding fairly level over the past year.5 “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 increasing 10.7% for the one-year period ending June 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 well below recent peak levels in 2007 and 2008, when debt amounted to more than 13% of disposable income.6
With personal savings at reduced levels, job stability heavily influences consumer spending habits. Haworth says a key number to watch is the report on initial weekly jobless claims. Claims rose to 265,000 in June 2023, but have been lower since, most recently at 225,000 new jobless claims for the week ending September 28, 2024.7 “It will become more concerning if initial weekly jobless claims consistently rise above 300,000,” 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 second 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 ($17.8 trillion as of June 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%, well below levels that topped 13% in 2008.
According to the Federal Reserve Bank of New York, total household debt now stands at $17.8 trillion. While this is a record sum, U.S. household debt as a percentage of disposable income is less than 10%, well 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 4.3% (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.
The Federal Reserve has started easing monetary policy by cutting interest rates. Does this mean the threat of a recession has receded?
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