Key Takeaways
- The US consumer still looks healthy despite a slowdown in spending and gloomy sentiment data, analysts say.
- The jobs market is holding up, household balance sheets are strong, and spending is continuing to grow.
- There are still worries that tariffs, inflation, or a slowing labor market could dent consumer activity in coming months.
The US consumer has been in a bad mood—and it’s no wonder, given the threat of tariffs, a dramatic stock market selloff last month, and years of elevated inflation in the wake of the pandemic. But under the hood, analysts say household balance sheets are healthy and if President Donald Trump continues to retreat on his trade wars, that could help lift the clouds over the consumer spending outlook.
Right now, data on the labor market, consumer credit, and house balance sheets “provides a story for the consumer actually being in a very decent place to be able to weather downturns,” says Josh Hirt, senior US economist at Vanguard.
That’s good news for the economy, given that consumer activity accounts for more than two thirds of US gross domestic product. An unexpectedly resilient consumer has helped power growth and stave off a recession over the past few years.
If consumers were to falter and stop spending, the effects would be far-reaching. Measures of consumer sentiment have declined precipitously over the past few months, setting off alarm bells for market watchers and prompting questions about how much longer the engine of the US economy can continue chugging along.
To be sure, measures of consumer spending have slowed in the first half of this year. And while the risks to the economy from tariffs have moderated as the Trump administration has delayed or reduced many of the new levies, they have not disappeared. Those factors are certainly contributing to the sour mood on Main Street. But sentiment isn’t the whole picture, analysts say, and for now, the consumer is still hanging on.
The private sector “has been holding up relatively steady, and the consumer is the key part of that,” adds Jason Draho, head of asset allocation Americas at UBS Global Wealth Management. “Unless there’s signs of that cracking, then I think the economy should be OK.”
Here’s what investors need to know about US consumers right now.
Confidence Bounces Following Tariff De-Escalation
As the outlook for tariffs has softened over the past few weeks, consumers have grown more confident.
A closely watched survey of consumer attitudes from The Conference Board showed a major turnaround in May following the major de-escalation of tariffs between the United States and China earlier this month.
The “striking” rebound “leave[s] the very downbeat headline index for the Michigan [sentiment] survey looking far too negative,” commented Samuel Tombs, chief US economist at Pantheon Macroeconomics. Data from the Michigan survey was flat in April after four consecutive months of declines.
In a research note, Wells Fargo economists Tim Quinlan and Jeremiah Kohl pointed out there’s still plenty of ground to make up. “Confidence remains near the low-end of the recent range and further improvement may depend upon continued de-escalation of trade hostilities,” they wrote.
How the Jobs Market Affects Consumer Outlook
It’s hard to talk about consumers without talking about the job market.
“A lot of this comes back to the labor market, because the consumer generally spends what they make,” says Vanguard’s Hirt. “The labor market is really one of your better indicators for what’s happening with the consumer.”
And so far, the job market is holding in. The unemployment rate has remained steady around 4.2% over the past two months. Job growth remains healthy, even if it has slowed compared with the boom in the immediate aftermath of the pandemic. The economy added 177,000 jobs in April—decent growth, according to analysts.
Monthly Payroll Change
Source: Bureau of Labor Statistics. Data as of April 30, 2025.
Data released this week by The Conference Board showed that, in May, more consumers expected jobs to be readily available in the future compared with April survey results. At the same time, however, a larger share of respondents in May said that jobs were difficult to get compared with April.
What Impact Are Tariffs Having on Spending?
Even before many new tariffs took effect, the impact of Trump’s trade policy moves showed up in spending data. Retail sales spiked in March as buyers attempted to get ahead of tariffs, but then rose at a much slower pace in April.
Spending at restaurants rose the most of any category in April, according to data from the Census Bureau, a sign that there’s still momentum in nonessential, discretionary spending.
Meanwhile, data released Friday by the Bureau of Economic Analysis as part of the April Personal Income and Spending report showed a slowdown in spending on goods, while spending on services remained steady. It’s more evidence that consumers shifted their spending habits this spring in response to new tariffs.
Draho of UBS cautions against taking one or two months of volatile spending data in a vacuum. He says the larger picture shows that spending is still healthy.
“There’s some pockets [of weakness] here and there, but by and large, consumers are continuing to spend,” Draho says. There’s “not yet clear evidence that the consumer is being negatively impacted, or cracking or pulling back because of tariffs.”
Federal Reserve officials have taken the same view. At the central bank’s May meeting, Federal Open Market Committee members discussed the fact that “other than apparent front-running effects seen in some spending categories, effects of tariff-related developments were not widely evident in the aggregate consumer spending data,” the minutes show.
Income Growth Is Strong
Friday’s personal income report also showed that disposable income rose 0.8% for the month, after climbing 0.7% in March. That’s an encouraging sign, especially in the face of higher inflation.
“This should give US consumers the fuel they need to keep spending through the shock of tariff-induced higher goods prices,” said Scott Anderson, chief US economist at BMO Capital Markets.
Why the Stock Market Bounce Matters
Another facet of consumer health and confidence comes from a phenomenon called the wealth effect—when financial markets rise, household spending tends to rise, too, because consumers invested in the market see the impact of that growth on their bottom lines.
“Wealth has been a really positive story” for the consumer, Hirt says, except for the dramatic selloff after Trump’s tariff announcement in April. “You really see that their balance sheets are healthy.”
The Morningstar US Market Index has recouped all its April losses and then some and is up more than 12% over the past 12 months.
Consumer Debt Looks Sustainable
Analysts pay close attention to how much debt consumers are accruing and how much it costs to service that debt each month via interest payments. More debt that becomes more expensive can be a red flag.
Contrary to popular belief, Hirt says, “we find [consumers] to be in a very sustainable place” when it comes to borrowing. “You could even make the argument that they’re somewhat underlevered relative to the economic environment.”
Hirt points to the ratio of US consumer debt costs relative to their income, which remains lower than it was prior to the pandemic. Consumer debt levels may be rising, but incomes have risen, too.
In a research note earlier this month, Goldman Sachs economists led by Jan Hatzius characterized household debt costs as “low by historical standards” and found that credit card delinquency rates leveled off in the first quarter. Federal student loan delinquencies surged following the end of a pandemic-era pause in reporting, though Goldman’s economists note that delinquency rates on those loans remain below 2019 levels.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
