March 10, 2025

Taylor St. Germain:
Hi everyone, my name is Taylor St. Germain with ITR Economics and welcome to this edition of TrendsTalk. We at ITR are an apolitical and unbiased source of economic intelligence and today I wanted to discuss the state of the consumer.

As we look at GDP, of course the largest component of GDP is consumer spending. So I’d say the state of the consumer is pretty important. Now let me first acknowledge that we read a lot of headlines of course out there in the media that highlights there might be concerns about the consumer. Is the consumer struggling? Are we taking on too much debt? Well I hope to answer some of those questions for you here today.

So let me first start off by highlighting from a GDP perspective we are expecting to see record GDP growth in 2025 and 2026 here in the US. That’s when you look at US real gross domestic products so the deflated version rather than the nominal version we expect to see a record-setting trend in GDP here in 2025 and 2026. Now again the consumer is a big important piece of that. It’s about two-thirds of GDP is consumer spending. Again it can vary slightly depending on the year but the consumer is very important to us here in the US. So let me evaluate a few different metrics that relate to the consumer in some way.

I’d like to first start off with retail sales. US total retail sales is now in phase B accelerating growth. At the time of this recording the 3/12 growth rate is up 4.4%, the 12/12 growth rate is up 3.3% and that equates to a dollar value of 8.577 trillion dollars of retail. And that is on a 12-month moving total that is a record high. high, folks. We are spending money from a retail sales perspective and we expect this to continue. We’re calling for about four and a half percent growth in 25 and a similar growth rate in 2026. So pretty steady four and a half percent growth in retail sales in the coming two years where the dollar value of retail sales will continue to exceed previous levels and soar to new record highs. So from a consumer perspective, I’d say we’re off to a pretty good start when we look at the retail sales picture, that angle of the consumer.

Now the second piece of evidence I would share with you is incomes. I always love evaluating this data series because a lot of the headlines love to suggest that real personal income is down compared to the pandemic timeframe. Well, compared to stimulus check time, we are at a lower level of income, but that’s not weakness. Right. Of course, compared to stimulus check time, we might not be at the same level of income. But what I like to talk about as it relates to income is trend. And when you look at the trend, we are above the trend line in terms of our pace of income growing here in the United States.

And I also look at a series that excludes all of those stimulus checks. And if you exclude transfer receipts, our incomes have been rising generally since 2010. There can be a little volatility in certain years. But the overall trend is that our incomes are continuing to rise as we’re talking today, as they have been overall, that trend line is moving up. So really what I’m saying is I think we’ve checked two boxes so far. We’re spending at record levels from a retail sales perspective and our incomes are rising.

So then the question comes down to debt. How are we handling our debt? Well, I’d also say we’re handling our debt pretty well. Now, the headline the media loves to grab is that dollar value of debt or credit card debt, for example, is at a record high. But I think that’s so disingenuous to look at debt just as an absolute value. The way we like to look at debt at ITR is as a percentage of earnings. Because we can take on more debt as long as our earnings are outpacing that, right? Or as long as our earnings are continuing to rise to where we don’t see the debt burden becoming substantial.

And I’ll actually highlight that household debt as a percentage of median annual earnings has actually fallen over the course of the last few months, which is very encouraging. It means as households here, we are handling our level of debt. We are actually below the pre-pandemic levels in terms of our household debt as a percentage of earnings. So I’d say we’re handling debt just fine. We’re really sitting below the 10-year average when we look at this metric. That’s good news.

Now, credit card debt as a percentage of median annual earnings has been rising. It’s at 14.7%. However, that is still, again, below the pre-pandemic level that we were looking at, which was about 15.4%. So yes, it’s something we watch closely, but again, this is why I don’t look at just credit card debt in terms of a nominal dollar value. I wanna know how much credit card debt do we have as a percentage of earnings. And when you look at that metric, we’re really below that pre-pandemic level. We’re handling our credit card debt much better as a country than we were before the pandemic. This is really encouraging to me.

So again, when I look at the three categories we’ve evaluated, we’re handling our debt, we’re seeing incomes rising, and retail sales is at a record high. That’s very encouraging to me as an economist. Now, I will give you something to watch. And that is that if there were any concerns that I had about the state of the consumer, it would really be targeted to the lower half of the income bracket here in the country.

And the metric I look at that is something worth watching is the number of individuals making the minimum payment on their credit cards. If you look at that three month moving average, it’s at about 10.8%. Pre-pandemic in December of 2019, we’re at 10.2%. So we are about 0.7% higher, 0.6% higher when we look at the number of folks making the minimum payment on their credit cards. So again, that’s something that I’m watching, but not something that I’m concerned is going to derail GDP growth. It just highlights that there is a portion of the economy, typically those folks making below the average income who are moving through a little bit of financial constraint.

Now, as we think about the second half of 25 into 2026, there are some potential inflationary pressures that could impact the consumer that we have to watch closely. Tariffs being put in places is an example of those. And we’ll continue to update you through TrendsTalk, through our other podcasts, Fed Watch, as it relates to how we’re viewing inflation, tariffs, policy, interest rates, and what that might mean for the consumer. But so far, I’m excited about the second half of 25 as a result of the health and resilience of our U.S. consumer.

I hope you found this information helpful. I mentioned some of the policies that we’re evaluating at the time of this recording, tariffs on Canada and Mexico were just put in place. I want to remind everyone that on March 20th, we’re hosting a ITR Summit with our parent company, Crowe, where we’ll be diving into legislation. We’ll be diving into supply chain impacts and really unpacking some of the early months of this administration. And what it means for the economy moving forward. So please head over to our website to learn more about the summit on March 20th.

But for now, I hope you found this helpful. Looking forward to talking to you all again next week. And I hope you have a great rest of the week and weekend. Thank you very much. Take care for now.