U.S. Consumer Spending Declines Sharply

In a startling update from Fitch Ratings, U.S. consumer spending has slumped dramatically in the first half of 2025, pulling away from the strong growth rates seen in late 2024. A detailed analysis from the latest U.S. Consumer Health Monitor reveals that uncertainty over trade policies, along with fluctuations in the equity market, has significantly dented consumer confidence and spending.

Labor Market Slowdown Adds to Consumer Woes

Economic analyst Olu Sonola warned that as tariffs increase costs for goods, inflationary pressures could lead to a stagflation scenario by the end of the year. "Higher prices are likely to affect consumer goods first, potentially curtailing spending just as the holiday season approaches," he stated.

Dramatic Drop in Spending Growth Rates

The figures tell a grim story: consumer spending growth plummeted to just 0.5% in the first quarter of 2025 and 1.4% in the second quarter, a steep decline from 3.7% and 4.0% in the third and fourth quarters of 2024 respectively. Spending on services saw a slowdown as well, with increases of only 0.6% and 1.1% in the same quarters. Additionally, durable goods spending fell dramatically, down by an alarming 3.7% in the first quarter.

The Impact of Tariffs and Housing Market Turbulence

Tariff-induced volatility continues to haunt the goods market, prompting Fitch to predict a modest average growth of just 1.8% in consumer spending through 2025 and 2026—a drop from 2.8% the previous year. Furthermore, consumer net worth decreased by 0.9% in the first quarter of 2025, coinciding with a lackluster stock market directly impacted by tariff concerns.

Real Estate and Consumer Confidence Outlook

As home prices soften, the once-booming real estate equity takes a hit, contributing to the overall decline in consumer wealth. Although there was a slight rebound in consumer confidence observed in May—after months of decline from late 2024—experts agree that a weakening labor market could inhibit future improvements.

What Lies Ahead for the U.S. Economy?

As the economy braves these challenging predictions, consumers may find themselves adjusting their spending habits, especially with rising prices looming. The prospect of an economically cautious holiday season now hangs in the balance, as consumers grapple with a landscape marked by inflation and unstable job security.