with Michael Feuz

REVIEWING THE CURRENT STATE OF THE CONSUMER

This week on TrendsTalk, ITR Economist Michael Feuz presents an analysis of the state of the consumer and its implications for our 2025 economic outlook. How are challenges such as inflation affecting consumer spending? Tune in to find out what the data says!

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Mike Feuz

MEET YOUR HOST

Michael Feuz

Michael Feuz is a key member of ITR Economics’ team of expert economists and consultants. Backed by a decade of experience working for technology start-ups, he contributes to the production of client reports, forecast reviews, economic research, and regular client-facing communications.

“Join me on the TrendsTalk podcast to explore the world of economics. Episodes offer insightful discussion and expert interviews. We cover relevant economic concepts in an accessible way. Whether you are a curious layperson or an industry professional, TrendsTalk is your go-to source for thought-provoking analysis and a deeper understanding of the economic forces shaping our world.”

Key Episode Takeaways

  • 0:06 – State of the consumer and its impact on our 2025 economic outlook
  • 0:53 – Consumer spending and GDP data analysis
  • 1:58 – Highlighting Real Personal Income trends
  • 2:55 – Highlighting US Retail Sales performance
  • 3:53 – Consumer segmentation and Retail Sales outlook
  • 5:12 – Leading indicators and trends showing positive signs for consumer strength
  • 6:36 – Consumer debt management and cautionary notes
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The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hello, everyone. Welcome back. I’m Michael Feuz again, economist and speaker here at ITR Economics, filling in again for Taylor St. Germain, who should be back soon, taking back over for TrendsTalk, but I’m excited to be here.

Today, I want to talk to you about the state of the consumer and how that certainly informs our outlook for 2025. We’ve opened up this year just doing a kind of a forward-looking view of 2025 overall. Last week, we covered residential construction trends. The consumer is obviously exceptionally important for the overall economy, for residential construction.

Thinking about the overall economy, 2025, as we covered, will be a year of macroeconomic rise, with growth picking up especially in the second half of 2025. Thinking about GDP, GDP on real gross domestic products, so real meaning we’ve deflated it for inflation, it’s chained 2017 dollars I’m talking about, is at an all-time high. Our forecast is for general GDP growth over the next 12 quarters. The consumer spending makes up 68% roughly of total GDP. That goes to the, what we all say, the consumer is king, it is certainly true. When looking at the consumer, the first and how they’re doing, how are they positioned especially amidst the challenges and headwinds and pain caused by inflation and the elevated interest rate environment.

The first place I want to look it’s just at real personal income. Real again, similar to GDP, when we say real, that’s the economist way of saying, deflating that series, kind of getting that clear picture of how the consumer’s doing. Real incomes, both including transfer receipts, which means any kind of government check, welfare, social security, et cetera, and without transfer receipts, both of those are rising. This tells us that the consumer is equipped to deal with the headwinds of inflation. Does not mean they’re not feeling the pain at the grocery store, feeling the pain at the gas pump, but with real incomes rising, and real incomes minus transfer receipts is at an all time high. So the consumer is well positioned or in a general place of strength.

Now, whenever I want to, or we want to answer that question. What’s the consumer up to right now? Especially with 68% GDP being made up of consumption. A great place to look is at US total retail sales, just gives us that quick snapshot. I think I covered this briefly two podcasts ago when we looked at the overall outlook, but retail sales over the past 12 months, there’s been $8.5 trillion of consumer spending on a growth rate, that 12/12 growth rate and that 3/12 growth rate, both are at about 3%. Now this isn’t deflated. So if we do deflate those numbers, those 3% growth numbers on a nominal value, we get that deflated number much closer to that zero line, showing a little bit of flatness in retail sales, meaning the consumer’s putting a little less in their shopping cart per se, but they’re still willing to spend nominally.

In the early parts of this decade, so that’s COVID and all the excitement, I guess for the lack of a better term, we did see a divergent experience depending on income levels, investments, industry location. So the lower middle income brackets in the US certainly are feeling the challenges more of inflation. And this retail growth activity is absolutely being driven primarily by that middle to upper income bracket.

Now we’ve seen a sizable amount of consumers in the US seeing their overall nest day grow in value. We’ve seen those incomes continue to rise. So we expect that general overall, those two to help drive retail sales growth as we move especially into the second half of the year. Our outlook is for general flatness to hold in total retail sales and then to start picking up those growth rates to increase third quarter, fourth quarter of 2025. But be sure if your business, if you serve the overall consumer, if it’s B to C, if that’s where your business position, be sure to know which consumers you’re showing, do your, or you’re exposed to, do your market research on that specific customer base that impacts your business.

Now, another, when we’re looking at some of the leading indicators, we also want to look at personal or at average US savings balance index, again, deflated. That series is leads retail sales by about 12 months. Again, thinking about the economy like a train. The front of the train is always those financial indicators, which is interest rates, but also savings, which lead retail activity by about 12 months. We’re seeing it is in phase B up 2.5%. This again is suggesting an indicative that we’re going to get that bounce back of the consumer strength, especially as inflation reaches its low point around June of this year. And we see those interest rates continue to ease with stronger savings accounts, all of that pointing to that stronger second half of further consumer activity continuing to drive higher economic growth in the economy.

And then just lastly, on the positive side, if we look at disposable income, that 12 month moving average for disposable income continues to rise. Now the growth rate is in a slight phase C right now, but again, this is a excellent leading indicator that disposable incomes continue to rise. All of these coalescing and informing us of a much stronger consumer and more active consumer to come in the second half of 25.

And as we go into 2026. Lastly, not to end on any negativity, but we do wanna always check how the consumer’s doing regarding handling of their debt. We do see that near term caution for concern. When we look at auto loan delinquency, we look at credit card delinquency, we look at residential delinquency, all are slightly elevated above really the past decades or the prior decades average, but only mildly elevated.

If we look at credit card delinquency, we see about 3.23%. The pre-COVID 10 year average was 2.76%. So slightly elevated shows that softer consumer here in the near term, but with those broad, all those trends we talked about with the lowering of the inflation interest rates and the strong consumer financials, speaking to things starting to bounce back, stronger, more consumer activity, driving higher rates of growth as we move into that post really second quarter of this year.

So with that, I’ll leave it there. Thank you again for joining me here on this episode of TrendsTalk. Again, my name is Michael Feuz, economist and speaker here at ITR Economics.