U.S. consumer spending growth masks pressure on households and retailers

Traders Union
All News
Financial News
U.S. consumer spending masks pressure

Highlights

U.S. retail sales growth remains above inflation, with real personal consumption expenditures consistently above 2 percent despite a weaker July.
Walmart’s Q2 earnings show its weakest same-store sales growth in six years, highlighting mounting pressure on middle- and lower-income consumer segments.
Household savings rate has fallen to 3 percent, near historic lows, while elevated auto and credit card delinquencies signal rising reliance on borrowing amid tightening financial conditions.

Spending trends and signs of strain

As reported by Financial Times, retail sales growth in the U.S. is still running above inflation on three-month and six-month moving averages, and real personal consumption expenditures remain consistently above 2 per cent despite easing from 2024 and 2025 levels.

That broader picture is reinforced by private card-spending data cited from Bank of America, which indicates a relatively solid year so far even with a weaker July. The overall reading suggests consumers are still supporting economic activity beyond areas such as strong corporate profits and data centre construction.

At the same time, pressure is becoming more visible in consumer-facing sectors. Walmart’s second-quarter earnings report shows its weakest same-store sales growth in six years, a result that raises concerns about the health of middle-income and lower-income households.

The tension between firm aggregate spending data and weak company results leaves an unresolved question for investors and policymakers. Part of the gap appears to reflect pricing and product-mix errors by retailers, while another part points to a steady decline in real wages.

Household budgets shift toward essentials

Spending growth is also outpacing income growth, while the household savings rate has been falling since early 2024. At 3 per cent, the savings rate is near the lowest levels of the postwar period outside 2005-07 and 2022, indicating that some households are drawing down savings to maintain consumption.

Debt trends add to that picture. Elevated serious delinquency rates among auto and credit card borrowers for several years suggest that some consumers are relying more heavily on borrowing as financial conditions tighten.

Yet that spending is not translating cleanly into stronger results for retailers and restaurants because more household money is flowing into services categories tied to necessity or asset-price gains. Healthcare, housing and utilities are expanding quickly because consumers must pay higher bills, while growth in financial services and insurance is being driven in part by commissions, portfolio management fees and investment advice that rise with asset prices.

That mix implies the headline consumption figures are obscuring a less healthy underlying picture of the U.S. economy. Rather than signaling a broadly vibrant consumer backdrop, current spending patterns point to weak housing affordability, expensive healthcare and the effects of high asset prices.

Our earlier coverage of the widening gap between corporate profits and worker pay examined how pre-tax earnings rose to a postwar high share of national income while labor’s share fell toward multi-decade lows. We noted that real hourly earnings were slipping even as asset prices and profit margins benefited higher-income households, adding to political backlash over an economy increasingly split between capital gains and wages.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.