Spending Commentary

The Consumer Economy

The American economy runs on consumer spending. At roughly $21.5 trillion annualized, personal consumption expenditures account for approximately 70% of U.S. GDP, a proportion that makes the American consumer the single most important economic actor on the planet. When Americans spend, the global economy grows. When they pull back, the world notices.

This reliance on consumer spending is both a strength and a vulnerability. It means the economy responds quickly to changes in consumer confidence, employment, and credit availability. It also means that any sustained decline in household spending (whether from recession, inflation, or credit tightening) reverberates through every sector of the economy.

The Savings Rate at Multi-Decade Lows

The personal savings rate stood at just 3.6% as of December 2025, near the lowest levels since the mid-2000s housing boom. This figure represents the share of disposable income that households save rather than spend. At 3.6%, Americans are collectively saving roughly $835 billion per year, a number that sounds large until compared to the $21.5 trillion they spend.

The low savings rate reflects multiple pressures: rising costs for housing, food, and insurance; the depletion of pandemic-era excess savings; and persistent consumer confidence that has kept spending elevated even as debt levels climb. Historically, the savings rate averaged closer to 8–10% from the 1970s through the 1990s. The current level leaves American households with significantly less cushion against economic shocks.

Post-COVID Normalization

The COVID-19 pandemic created the most volatile spending pattern in modern economic history. In April 2020, consumer spending plummeted as lockdowns shuttered businesses. Simultaneously, the savings rate spiked to 32% as government stimulus checks arrived with limited opportunities to spend them. What followed was an unprecedented whiplash: a surge in goods spending (home offices, electronics, exercise equipment) followed by a rotation back into services (travel, dining, entertainment) as the economy reopened.

By 2025, the normalization is largely complete. The excess savings accumulated during the pandemic (estimated at $2.1 trillion by the San Francisco Fed) have been largely depleted. Spending patterns have returned to their pre-pandemic trajectory, though at higher nominal levels reflecting the cumulative inflation of 2021–2023.

The Goods-to-Services Shift

One of the enduring consequences of the pandemic is the accelerated shift in spending composition. During lockdowns, goods spending surged as Americans bought physical products to improve their home environments. Since 2022, the pendulum has swung back decisively toward services: healthcare, travel, restaurants, entertainment, and personal care. Services now represent roughly two-thirds of consumer spending, reflecting both a return to pre-pandemic norms and the long-term trend toward a service-oriented economy.

Inflation's Impact on Real Spending

Nominal spending figures can be misleading. When adjusted for inflation, the growth in consumer spending looks considerably less impressive. A household that increased its grocery spending from $800 to $1,000 per month between 2020 and 2025 has not actually consumed more, it has simply paid more for roughly the same basket of goods. This is the hidden cost of inflation: it makes the economy appear to grow even when real consumption is flat or declining for many households.

The spending data tells a story of resilience and vulnerability in equal measure. American consumers continue to drive the economy forward, but they are doing so with depleted savings, elevated debt levels, and a cost of living that has outpaced wages for many. How long this dynamic can sustain itself is one of the central questions facing the U.S. economy.