US consumers facing financial strain as debt levels rise and consumption stays flat
From Investing.com: 2025-04-11 06:10:00
Recent implementation of tariffs has sparked concerns about increased recession odds as consumers may face higher costs. Despite recent economic reports showing robust growth, data has not caught up with reality. The American consumer, a key player in the US economy, makes up nearly 70% of GDP. While savings surged after the pandemic, consumption as a percentage of the economy has stayed flat. Consumers are struggling to make ends meet due to rising debt levels. The collapse of household balance sheets in lower and middle-income brackets is causing cash flow stress, with more people falling behind on credit card payments and turning to high-interest borrowing.
Consumer confidence is declining as corporate earnings and executive commentary reveal that consumers are under financial pressure. People are cutting back on spending, and some are even sacrificing necessities to afford groceries and fuel. The shift in consumer behavior toward survival-based spending is deflationary and signals recessionary conditions. Economic indicators like real GDP, housing data, and consumer confidence are all pointing towards increased recession risks and potential deflation.
Rising input costs due to tariffs, combined with weak consumer demand, are leading to demand destruction and deflationary pressures. Credit conditions are also reinforcing recession risks as banks tighten lending standards and credit availability decreases. The US consumer, once a driver of economic growth, is now a potential drag on the economy. A policy pivot may be necessary, with calls for rate cuts increasing. However, policymakers face challenges due to inflation concerns and a cooling labor market.
The American consumer is facing financial strain, and corporate America is adjusting to this new reality with cautious guidance for 2025. Without significant wage growth or interest rate declines, pressure on households will continue to mount. The looming threat of recession and deflation is becoming more prominent, with declining real incomes and credit exhaustion signaling risks to the economy. Investors and policymakers should focus on the deteriorating consumer balance sheet as the next economic shock may be on the horizon.
Read more at Investing.com: The US Consumer Is Tapping Out