The most reliable engine of American economic growth—the consumer who keeps spending no matter what—is showing unmistakable signs of exhaustion.
For the better part of four years, economists have marveled at the resilience of U.S. households. They absorbed forty-year-high inflation, the fastest rate-hiking cycle since Volcker, and a pandemic savings drawdown that should have cratered demand. Instead, they kept swiping. Retail sales held. Services spending boomed. The recession that was always six months away never arrived.
That story is now changing. Credit card delinquencies have climbed to their highest levels since the 2008 financial crisis. The personal savings rate has dipped below 4%, well under its pre-pandemic norm. And while the labor market remains technically healthy, the quality of job growth has deteriorated—more part-time positions, fewer hours, and a cooling in the white-collar sectors that drove the post-Covid wealth effect.
The credit card cliff
Americans are carrying over $1.1 trillion in revolving credit card debt, a record. More troubling than the headline figure is the composition: lower-income households are increasingly using plastic to cover essentials, not discretionary splurges. When groceries go on a 24% APR card, that's not consumption—it's distress borrowing.
The delinquency data confirms the strain. Serious delinquencies—accounts 90 days or more past due—have surged among borrowers under 35 and those with subprime scores. Auto loan defaults are following a similar trajectory. The consumer isn't just slowing down; a meaningful slice is actively struggling.
Why it matters for markets
Consumer spending accounts for roughly 70% of U.S. GDP. When it falters, the ripple effects are immediate: corporate earnings compress, hiring freezes spread, and the feedback loop that policymakers fear most—declining spending leading to declining income leading to further declining spending—can take hold.
The Federal Reserve finds itself in an uncomfortable position. Inflation remains sticky enough to forestall rate cuts, but the consumer data increasingly argues for easing. Chair Powell's recent comments emphasized patience, yet the window for a soft landing is narrowing. If households retrench before the Fed pivots, the central bank risks being late again—this time in the other direction.
Our take
The American consumer has been the global economy's shock absorber for years, and markets have priced in that durability as a permanent feature. It isn't. The combination of depleted pandemic savings, elevated debt servicing costs, and a labor market that's cooling at the margins suggests the spending engine is finally running low on fuel. That doesn't mean recession is inevitable—but it does mean the margin for policy error has shrunk considerably. Investors still betting on the consumer to bail out stretched valuations may want to revisit that thesis.
