Assessing the Resilience of U.S. Consumer Spending Amid Moderating Personal Income Growth

The U.S. economy’s second-quarter 2025 growth of 3.3% underscores the enduring role of consumer spending as a growth engine, even as personal income trends and inflation dynamics introduce headwinds. This growth, driven by broad-based consumption in sectors like healthcare and food services, masks a fragile undercurrent: households are increasingly relying on a mix of savings, debt, and income adjustments to sustain spending.

The Dual Forces of Income and Inflation

Personal income growth in June 2025 rebounded by 0.3% month-over-month, reversing a 0.4% decline in May, but real disposable income remained flat [1]. This stagnation reflects the drag of 2.7% annual inflation, which disproportionately impacts shelter and medical care costs [2]. While wages rose 1.2% year-over-year, outpacing headline inflation, the erosion of real income gains has forced households to adopt value-conscious behaviors, such as switching to store brands and using coupons [3].

The interplay between income and inflation reveals a paradox: consumer spending rose 1.6% in Q2, contributing to GDP growth, yet households report heightened financial stress. A McKinsey survey found 43% of consumers cite inflation as their top concern, while 29% point to tariffs [4]. This duality suggests that spending is not solely driven by income gains but also by behavioral shifts to mitigate cost pressures.

Debt and Savings: A Tenuous Equilibrium

The U.S. personal savings rate in May 2025 stood at 4.5%, down from 4.9% in April, indicating a narrowing buffer for households [5]. Meanwhile, total household debt climbed to $18.39 trillion in Q2, with credit card balances reaching $1.21 trillion [6]. This trend highlights a growing reliance on debt to maintain consumption, particularly among subprime borrowers. While credit card delinquency rates have risen, the broader population continues to manage debt responsibly, suggesting a temporary but precarious equilibrium.

The sustainability of this model hinges on two factors: the ability of households to service debt amid rising interest rates and the resilience of savings as a shock absorber. The 4.5% savings rate, though modest, provides some cushion, but its decline signals a tightening of financial flexibility.

Generational and Income-Level Divergence

Consumer behavior is further fragmented by generational and income-level differences. Gen Z and millennials are more likely to delay purchases or opt for secondhand goods, while baby boomers show less behavioral change despite inflation concerns [7]. Lower-income households, in particular, are cutting back on nonessential spending, with 69% of parents setting stricter back-to-school budgets in August 2025 [8]. These disparities underscore the uneven distribution of economic pressures and the potential for divergent spending trajectories in the future.

The Path Forward

The U.S. economy’s reliance on consumption-driven growth faces a critical juncture. While current spending is supported by a combination of wage growth, savings, and debt, the long-term resilience of this model depends on addressing inflationary pressures and ensuring income growth keeps pace with living costs. Policymakers and investors must monitor debt accumulation and savings depletion closely, as these metrics will determine whether the current trajectory is sustainable or a prelude to a correction.

In the near term, the interplay between moderating income growth and inflation will likely keep consumer spending in a state of cautious resilience. However, without structural adjustments to address wage stagnation and cost-of-living challenges, the fragility of this equilibrium could undermine the broader economic outlook.

Source:
[1] Personal Income and Outlays, June 2025 [https://www.bea.gov/news/2025/personal-income-and-outlays-june-2025]
[2] Consumer Price Index Summary - 2025 M07 Results [https://www.bls.gov/news.release/cpi.nr0.htm]
[3] The Real Impact of Inflation on Consumer Spending in 2025 [https://www.letshighlight.com/blog/the-real-impact-of-inflation-on-consumer-spending-in-2025]
[4] US Consumer Spending Trends 2025 [https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/the-state-of-the-us-consumer]
[5] United States Personal Savings Rate [https://tradingeconomics.com/united-states/personal-savings]
[6] Household Debt and Credit Report, Q2 2025 [https://www.newyorkfed.org/microeconomics/hhdc]
[7] Stalled Spending in 2025: What the Data Reveals [https://www.intelligentaudit.com/blog/stalled-spending-in-2025-what-the-data-reveals]
[8] Stalled Spending in 2025: What the Data Reveals [https://www.intelligentaudit.com/blog/stalled-spending-in-2025-what-the-data-reveals]