U.S. Economics – Consumer Setup

Intro

Total outstanding consumer credit declined by $810 million m/m in February, pushing the y/y growth rate to -1.0%, its largest annual decline since October 2010. Also in February, the personal saving rate increased to 4.6%, an eight-month high. This dynamic, alongside the slowdown in real PCE and sentiment data, likely reflects an increasingly cautious consumer. If these emerging changes in direction were to continue, we would expect to see a broader negative impact on real economic activity.

Consumer Setup

The Signals:

• • Consumer Credit Outstanding (Chart 1)
    • In the month of February, total outstanding consumer credit declined to $4.997 trillion, revolving credit declined to $1.324 trillion, and non-revolving credit declined to $3.673 trillion.
      • On a y/y basis, total outstanding, revolving, and non-revolving decelerated to -1.0%, -1.2%, and -1.0%, respectively.
      • Negative consumer credit growth has typically occurred in periods of broader economic weakness.
  • Consumer Savings (Chart 2)
    • Personal saving as a percentage of disposable personal income increased 30 basis points to 4.6% in February, its highest level since June 2024.
      • Increased savings tend to be positive at certain points of a cycle, but given the direction of recent economic indicators, this rise likely points toward increased caution on the consumer side.
  • Consumer Spending (Chart 3)
    • Real personal consumption expenditures (PCE) slowed to 2.7% y/y from 2.8%, in-line with its average pace from 2015 to 2019.
      • Services spending grew between roughly 2.8% and 3.3% in each month from February 2024 to January 2025, but the latest month signaled a sizeable step down to 2.3%, its largest rate of change deceleration since July 2022.
      • Goods spending, however, returned to its upward trend on a y/y basis, accelerating to 3.6% from 2.7%.
      • While a recovery in goods spending is positive, services outweigh goods in terms of the share of total spending at 66% compared to 34%.
      • If services spending continues its current path and goods spending faces headwinds related to changes in tariff policy, then we would expect to see a decline in total real PCE and therefore, lower contributions to real GDP growth.
  • Consumer Sentiment (Chart 4)
    • While we tend to assign a lower weighting to sentiment trends relative to hard data, the Conference Board (CB) and University of Michigan (UM) consumer sentiment surveys have turned downward in 2025 and there are few aspects worth noting.
      • First, the directional divergence between current conditions in the CB and UM reports has been in place since 2021, but neither series returned to pre-pandemic levels despite low layoffs, positive wage growth, and healthy spending growth.
      • Second, consumer expectations have declined by more than their perception of the current environment, likely signaling the uncertainty and concern for the economy if the current trade war persists or escalates – a dynamic we have seen at the corporate level as well in terms of earnings guidance and capex plans.

The Takeaway:

• Recent hard consumer data moved in a direction that partially corroborates weaker sentiment data, potentially reflecting early signs of a negative feedback loop that is likely related to heightened fiscal policy uncertainty.
• We would expect to see broader negative implications for real economic activity should these consumer measures continue their recent change in direction.

Visuals:

(Chart 1)

(Chart 2)

(Chart 3)

(Chart 4)

Source: Macrobond

Market Trends:

Source: Macrobond

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.