May 26, 2025
People have their favorite ways to evaluate economics. But I suggest you forget the twists of tariff policy and what pundits are saying on the news to instead focus on one thing.
This one thing will help you gauge the health of the economy and influence your long-term thinking about markets. Also, it’s not hard to find or complicated to understand. You can understand it by talking to your family and friends, seeing how crowded restaurants are, and by watching how many packages hit your neighbors’ doorsteps.
I’m talking about consumer behavior. Every single part of the American economy reflects trends in consumer spending.
For example, the clothing industry thrives when consumers buy more blue jeans. Jet engine demand rises when consumers buy more plane tickets. Oil consumption surges when consumers drive more often.
Consumer spending makes up around 70% of our economy and we’re getting a warning sign from consumers. While consumer spending hit at an all-time high in January, consumer confidence has plunged in recent weeks.
According to the Conference Board, consumer confidence is at a 12-year low. A big reason for the drop has been President Trump’s trade war with China and many other countries.
But this doesn’t tell the whole story. Although consumers are spending more, they’re spending more by taking on debt.
America’s total credit card debt is over $1 trillion. Thanks to higher interest rates and prices, folks are having a tough time keeping up with credit card payments.
According to the Federal Reserve, 11.1% of active credit card accounts only made the minimum payment in the fourth quarter of 2024. That’s up from the third quarter and is the highest level in 12 years.
This is a worrying trend, even if interest rates come down.