U.S. Consumer Outlook August 2024
Resilient consumers, who largely shrugged off rising interest rates to fuel the post-pandemic economy, may be starting to lose some momentum.
A healthy labor market, coupled with excess savings that households accumulated during the pandemic, allowed consumers to continue spending at a robust pace last year. Now that those savings are largely depleted, the resiliency of households is being tested in 2024.
The first half of 2024 saw moderating growth in both employment and wages, which are two key catalysts for household spending. Despite some recent signs of weakness, a continuation of the labor market expansion would make it likely that consumers will bend but not break during the second half of the year.
This article presents the latest trends in key indicators that impact consumers’ ability and willingness to spend.
Labor market starting to cool
Job growth is the primary driver of consumer spending, and there are signs that the labor market is beginning to cool. The national economy added just 114,000 jobs in July, which was down from the average monthly gains of 217,500 jobs during the first half of 2024. Although a deceleration in job growth is likely during the second half of 2024, the expectation is that employers will continue to expand payrolls through the end of the year.
Wage growth is slowing
Along with slower job growth, wage gains are also down from their robust pandemic-era growth rates. Average hourly earnings of private sector employees increased 3.6% between July 2023 and July 2024. That was more than 2 percentage points below the strong gains posted during 2022, but it was still slightly above the 3.3% average gain during 2019.
Savings rate dipped below pre-pandemic levels
Household savings soared during the first year and a half of the pandemic, driven primarily by reduced consumer activity as well as income-supporting fiscal stimulus packages. Many households used these excess savings to support elevated spending levels in 2022, which blunted the impact of soaring inflation. Savings rates are now below pre-pandemic levels, which means the financial cushion that many households established during the pandemic is being depleted.
Household wealth at a record high
Household wealth rose to record highs during the pandemic, driven by a surging stock market and accelerating home values. These two indicators reversed trend in 2022, which resulted in a decline in total household net worth. By the first quarter of 2024, total household net worth had rebounded to reach a new record high of more than $160 trillion. While household wealth doesn’t directly determine the amount that most consumers can spend on a daily basis, its impact on confidence influences current and future financial decisions.
Household debt continues to rise
Household debt trended steadily higher during the pandemic, with aggregate balances reaching $17.8 trillion by 2024:Q2. That was $3.7 trillion higher than the 2019:Q4 level. Mortgages represent the bulk of household debt at 70%, followed by auto loans (9%) and student loans (9%).
Revolving credit rising sharply
Consumer credit balances fell to a 4-year low during the early months of the pandemic – primarily because households had fewer places to spend their money. That trend quickly reversed as restrictions eased and the economy reopened. Revolving consumer credit rose sharply in 2022 and 2023, wiping out all of the balance reductions posted during the early months of the pandemic. By May 2024, total revolving credit balances topped $1.3 trillion – more than $225 billion (or 20%) above their pre-pandemic peak.
Debt service remains in check
Despite the elevated debt levels, debt service remains manageable for households on the aggregate. The Federal Reserve’s Debt Service Ratio, which is the ratio of total required household debt payments to total disposable income, was just under 10% in 2024:Q1. While that was higher than the lows posted during the first half of 2021, it was generally on par with pre-pandemic readings.
Overall delinquency rates are low
With debt service at manageable levels, overall delinquency rates remain in check. As of 2024:Q2, only 3.2% of outstanding household debt was in some stage of delinquency. While this was up 0.6 percentage points from the 2023:Q2 level, it remained well below the 2019 average of 4.6%.
Credit card delinquencies rising sharply
Overall delinquency rates remain low, but the percent of credit cards that were severely delinquent rose sharply in recent quarters. As of 2024:Q2, 10.9% of credit card debt was at least 90 days delinquent. That was up from a recent low of 7.6% in 2022:Q3 and represented the highest level in more than 12 years.
Read more analysis and commentary from the National Restaurant Association's economists, including the latest outlook for the economy.