US Consumers Slow Spending as Inflation Bites, Synchrony Says

The American consumer, once the backbone of the U.S. economy, is showing signs of fatigue. Synchrony Financial, a major player in the consumer credit market, has issued a stark warning: consumer spending is slowing down, and the impact on the broader economy could be significant. The company's forecast for 2025 projects a net revenue between $15.2 billion and $15.7 billion, down from about $16.13 billion in 2024. This decline is primarily due to reduced consumer spending and lower interest rates, which squeeze margins for lenders with high-cost credit card debt.

The reduction in consumer spending is a clear indicator of the economic headwinds facing the U.S. economy. Synchrony Financial noted a 3% drop in purchase volume, suggesting that consumers are holding back on non-essential spending. This cautious consumer behavior is likely to influence broader economic trends, affecting sectors that depend on consumer credit and spending.



The consumer discretionary sector, which includes companies selling nonessential goods and services like clothes, new cars, and hotel stays, is particularly vulnerable. As consumers become more cautious, they are likely to cut back on these types of expenses, which can lead to a decline in revenue for companies in this sector. This is evident from the underperformance of the consumer discretionary sector in 2024, where it lagged behind the broader S&P 500 index, rising less than 5% over a nearly six-month stretch. This underperformance was attributed to depleted savings levels, uncertainty over the future of the domestic jobs market, and moderating but still relatively high inflation.

Moreover, the reduction in consumer spending can also impact the housing sector. Homebuilders, for example, have been helped by constrained inventories, as many existing homeowners decided to stay put due to high home prices and mortgage rates. However, with consumers holding back on non-essential spending, there could be a ripple effect on the housing market, potentially leading to a slowdown in new home construction and sales.

The broader economic outlook for 2025 is clouded by these trends. The Federal Reserve's decision to cut interest rates, while intended to stimulate the economy, has had the unintended consequence of squeezing margins for lenders. This, combined with reduced consumer spending, could lead to a slowdown in economic growth.

However, it's not all doom and gloom. Synchrony Financial saw a healthy rise in net interest income last quarter, increasing to $4.59 billion from $4.47 billion year-over-year. Moreover, the firm noted a decrease in provision for credit losses to $1.56 billion, indicating a reduced risk of loan defaults. This suggests that while consumer spending is slowing, the overall financial health of consumers remains relatively stable.



In conclusion, the reduction in consumer spending, as indicated by Synchrony Financial, is likely to have a negative impact on the broader economic outlook for 2025, particularly in sectors reliant on consumer credit and spending. This cautious consumer behavior can lead to a decline in revenue for companies in these sectors, potentially slowing down economic growth. However, there are also signs of resilience in the economy, and it remains to be seen how these trends will play out in the coming months.