Over two years removed from the country’s worst bout of inflation in over four decades, as well as a high rate environment, the US economy has defied expectations. Prices continue to exhibit signs of being on a deflationary path, the labor market remains resilient, wage growth is solid, and real GDP continues to see healthy quarterly increases off the back of sturdy household spending.
Strong consumer confidence has historically exhibited strong links to robust consumer spending, both of which have been driven by the positive impact of wages outpacing the rise in prices in the past couple of years; nearly 60% of consumers that are financially better off received a pay increase in the past 12 months. Additionally, over half of consumers predict their personal finances will be better off over the next 12 months.
With optimism running deep amid a strong economic backdrop, consumers are poised to sustain their spending momentum throughout 2025 – evidenced by the 42% of households planning to travel in the first three months of the year, as well as further plans to engage with other diverse discretionary outlets like home improvements and big-ticket items in the near-term.
This report looks at the following areas:
- Change in consumers’ finances within the past year
- Consumers’ outlook on their personal finances
- Consumers’ past spending behaviors
- Consumers’ future spending expectations
A convergence of cooling inflation, lower rates, and wage growth opportunities will continue to drive consumer confidence and sustain robust spending in 2025.
Amr Hamdi, Senior Analyst – Financial Services
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EXECUTIVE SUMMARY
- What you need to know
- Households’ outlooks on their personal finances remains bullish
- Graph 1: opinions on financial future, 2024
- Graph 2: income growth in the past 12 months, by financial outlook, 2024
- How will consumer spending fare in 2025?
- Graph 3: highest priority financial goals in the past two years (NET – any rank), 2024 and 2025
- Consumer optimism is stretched across diverse income brackets
- Graph 4: opinions on financial future, by household income, 2024
- Low-income households remain a financially vulnerable segment still in need of their FIs’ support
- Travel remains a highly appealing spending outlet to kick off the new year, particularly among high earners
- Graph 5: planned financial behaviors over the next three months, by household income, 2024
- Opportunities
- Political concerns are highest among older generations, driven by the recent presidential election
- Graph 6: consumer sentiments towards the presidential election, by generation and employment status, 2024
- Graph 7: % of consumers concerned over domestic politics, by generation and employment status, 2024
- Engage with older clientele through educational investing content
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CONSUMER INSIGHTS
- Consumer fast facts
- State of consumers’ personal finances
- Nearly 45% of consumers have seen their financial situations change for the better in the past year
- Graph 8: change in financial situation over the past 12 months, 2023 and 2024
- Households’ financial improvements are strongly tied to income growth
- Graph 9: income growth over the past 12 months, by change in financial situation, 2024
- Black and Hispanic adults have seen their financial situations change for the better in the past year
- Graph 10: % of consumers that are financially better off, by race and ethnicity, 2023 and 2024
- While positive economic conditions have enabled optimism among Black consumers, challenges facing this group persist
- Graph 11: expected change in financial situation over the next 12 months, by race and ethnicity, 2024
- Black unemployment is the lowest it’s been in over four years, but is still the highest compared to other groups
- Graph 12: unemployment rate, by race and ethnicity, 2020-24
- Poverty rates hit a record low for the Black population in 2022
- Graph 13: official poverty rate, by race and ethnicity, 2003-23
- The median incomes of Black households grew by nearly 21% since 2003
- Graph 14: median household income, by race and ethnicity, 2003-23
- Consumers out of the workforce are most likely to be financially worse off, but these sentiments have subsided significantly since 2022
- Graph 15: % of consumers that are financially worse off, by employment status, 2024
- Married consumers are significantly more likely to be financially better off
- Graph 16: % of consumers that are financially better off, by marital status, 2024
- The percentage of younger consumers that are financially worse off has declined dramatically in more than a year
- Graph 17: % of consumers that are financially worse off, by generation, 2024
- Economic concerns
- Inflation remains consumers’ top ranking economic concern
- Graph 18: top economic concerns ranked, 2024
- Financially healthy consumers have become more concerned about inflation, compared to those in tight or struggling financial situations
- Graph 19: % of consumers that ranked inflation as their top concern, by financial situation, 2024
- Nearly 40% of renters are worried about the housing market, with 11% planning to buy a home in the next 12 months
- Graph 20: concerns over the housing market, by housing situation, 2024
- Graph 21: when consumers plan on purchasing a new home, by housing situation, 2024
- What 2025 holds for renters vying for home ownership
- Consumers’ spending and financial behaviors
- Travel, home improvement and big-ticket purchases are where consumers have put a large share of their money in the past year
- Graph 22: financial behaviors over the past year, 2024
- Consumers’ savings intentions are decreasing in favor of greater discretionary spending
- Graph 23: % of consumers planning to add to their savings, by generation, 2024
- FIs have an active prime and super prime segment to direct home improvement messaging towards
- Graph 24: planned financial behaviors over the next three months, by self-reported credit score, 2024
- Consumers have been less willing to cut back spending on non-essentials since last December
- Graph 25: changes consumers have made to their budgets in the past six months, 2024
- Financially struggling consumers will continue to pursue cost-effective solutions
- Graph 26: changes consumers would make if forced to restrict their budgets, by financial situation, 2024
- Lower-earners are forced to compromise the most when budgeting
- Graph 27: changes consumers have made to their budgets in the past six months, by financial situation, 2024
- Four in ten Gen Zers would buy more on credit if forced to restrict their budgets
- Graph 28: % of consumers that would buy more on credit if forced to restrict their budgets, by generation, 2024
- Educate younger customers about the dangers of credit overextension
- State of the economy
- Market context
- US economic overview
- The US expanded by 3.1% in Q3 2024
- Graph 29: quarterly real GDP growth, 2021-24
- Annual inflation slightly rose in November
- Graph 30: headline CPI and core CPI, 2021-24
- The unemployment rate edged up to 4.2%, but job creation rebounded after a sharp downturn in October
- Graph 31: unemployment rate, 2019-24
- Consumer sentiment reaches an eight-month high
- Graph 32: consumer sentiment index, 2022-24
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APPENDIX
- Consumer research questions
- Consumer research methodology
- Generations
- Abbreviations and terms
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