Global markets have faced significant uncertainty in early 2025, mainly due to tariffs impacting economic outlooks worldwide. Despite this volatility, the U.S. consumer remains notably resilient. March 2025 retail sales increased by 1.4% compared to the previous month and were up 4.6% compared to March 2024. Bank earnings, such as JP Morgan’s, illustrate this strength, showing increased spending on credit and debit cards throughout the first quarter. The bank noted no significant decline in consumer activity following the end of the quarter. This ongoing spending indicates proactive consumer behavior, with households buying goods ahead of expected price increases due to tariffs. This adaptability highlights consumers’ critical role in maintaining economic stability during uncertain times.
Consumer spending is central to the U.S. economy, representing nearly 70% of GDP in the fourth quarter of 2024. Personal consumption expenditures are the primary driver of U.S. economic growth. Even with tariffs and resulting market headwinds pressuring consumer confidence, current spending habits show households strategically focusing on essentials and significant purchases. Consumers are managing economic uncertainty pragmatically, but continued financial stability, especially in the labor market, is essential to sustain this spending momentum.
The labor market’s health is crucial for ongoing consumer spending and overall economic stability. A strong job market supports disposable income, allowing households to spend confidently. High employment levels and steady wages provide households resilience against external pressures like tariffs and inflation. Conversely, weaker employment conditions or stagnating wages could diminish consumer confidence, reducing spending and economic growth. Historical trends confirm this relationship: robust employment and wage growth typically accompany consumer-led expansions while deteriorating labor market conditions often signal impending economic downturns. With the unemployment rate at 4.2% and real wages up 1.4% year-over-year as of the most recent March data, we have yet to see signs of labor market deterioration.
Looking forward, policymakers and investors should closely monitor labor market indicators as key measures of economic health. While tariffs and global uncertainties are significant, the relationship between employment and consumer spending is paramount for the U.S. economy. Consumers form the foundation of the U.S. economy, and their strong spending in early 2025, combined with cautiously optimistic comments from bank CEOs during first-quarter earnings, provides a clearer signal through the economic noise.
