In the aftermath of the pandemic, the resilience of the US consumer has been a cornerstone of the economic recovery. Despite facing an unprecedented economic environment, sharply higher rates, and the threat of tariffs, consumer spending has remained robust, driving growth and stability. However, recent indicators such as softening job data and wavering consumer confidence suggest that cracks may be forming. Nevertheless, with consumer balance sheets remaining strong in aggregate, there is optimism that they will be able to navigate any economic turbulence.
Last week’s labor market data release showed that total nonfarm payrolls were lower-than-expected at an increase of 155,000 in February, while the January jobs figure was revised lower. The unemployment rate also surprisingly ticked higher to 4.1%. These labor readings are not as weak as they were last summer, which sparked a 50 bps rate cut from the FOMC in September, but the trend is certainly throwing the “no landing” economic scenario into doubt. These developments suggest that the labor market is losing some momentum, which could weigh on sentiment and spending.
Additionally, last month two key consumer-related “soft” economic indicators both declined. The Conference Board Consumer Confidence Index fell by 7 points in February to 98.3, marking its largest monthly drop since August 2021. Similarly, the University of Michigan Consumer Sentiment Index fell to 64.7 in February, the lowest level since 2023. Indeed, these declines signify confusion over the economic outlook amid ongoing tariff negotiations, tax cuts, and the government employment picture over the coming months.
While recent indicators suggest a slowdown in consumer activity, when zooming out, US households remain historically strong in terms of balance sheet health. The Fed’s Household Debt Service Payments as a Percent of Disposable Personal Income measures the portion of income dedicated to paying off debts, including mortgages, credit cards, and loans. This ratio is useful for assessing the financial burden on households and their ability to manage debt. A higher percentage indicates greater financial strain, while a lower percentage suggests households are better equipped to handle their debt obligations.
Currently, this ratio is near the lower end of where it’s been over the past 40 years, far from recessionary levels. Although we anticipate an economic slowdown, the US consumer is likely to weather the storm better than in past cycles, thanks to significant liquidity injections into the private sector from the government over the past two decades.
Originally published at Sage Advisory
For more news, information, and analysis, visit the ETF Strategist Channel.
Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.
Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our web site at sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.
