U.S. Consumer Spending: Cracks Emerging or Resilience Ahead for the Holiday Season?

August 2025 — The U.S. economy has surprised skeptics this year, delivering steady growth despite persistent inflation and high borrowing costs. But as we enter the crucial holiday shopping season, a key question looms: is the American consumer finally showing cracks, or will spending remain resilient?

Why the Consumer Matters More Than Ever

Consumer spending represents nearly two-thirds of U.S. GDP, making it the backbone of the economy. From retail sales and e-commerce to travel and dining, household expenditures ripple through markets, influencing everything from corporate earnings to stock indices.

Signals of Strength

Despite headlines about inflation, the data show resilience. Job growth has remained solid, wage gains outpace some inflation categories, and consumer confidence ticked higher in recent surveys. Retail sales for July beat expectations, suggesting households are still willing to spend on experiences, travel, and discretionary goods.

The Rise of Services and Experiences

Unlike in prior years where goods spending dominated, 2025 shows a shift toward experiences. Airlines, hospitality, and entertainment companies are reporting strong bookings, fueled by pent-up demand. This diversification helps cushion the economy even if retail slows.

Warning Signs on the Horizon

But not all is rosy. Credit card balances have hit a record $1.3 trillion, delinquencies are rising, and household savings rates are near post-pandemic lows. Inflation in essentials like rent, groceries, and insurance eats into disposable income, leaving less room for discretionary splurges.

Interest Rates and Debt Pressure

With the Federal Reserve maintaining higher-for-longer rates, borrowing costs for credit cards, auto loans, and mortgages remain elevated. This puts stress on middle-income households, particularly younger consumers already juggling student loans.

Holiday Season Outlook: Strong or Soft?

Retailers are cautious. While many expect mid-single digit holiday sales growth, strategies are shifting. Expect earlier promotions, AI-driven personalized discounts, and a heavier reliance on online channels. Black Friday may begin in October, as retailers aim to capture spending before wallets tighten.

Stock Market Implications

For investors, consumer resilience is critical. Strong spending supports retail stocks, travel companies, and tech platforms like Amazon. Weakness, however, could trigger market volatility — especially in consumer discretionary and financial sectors exposed to debt risk.

Conclusion: A Balancing Act

The U.S. consumer faces both tailwinds and headwinds. Resilient job growth and wage gains provide fuel, but debt and inflation present risks. Whether spending holds up this holiday season will shape not only retail earnings but also the broader U.S. market narrative into 2026.

FAQs

Why is consumer spending so important to markets?

Because it makes up about 70% of GDP, consumer health drives earnings for retailers, tech platforms, and service providers, setting the tone for stock performance.

What could boost holiday spending in 2025?

Wage growth, falling energy prices, and retailer discounts could all encourage shoppers to open their wallets despite debt burdens.

Which sectors benefit the most from strong U.S. consumer activity?

Retail, travel, dining, entertainment, e-commerce, and payment processors all stand to gain if consumer spending remains strong.

Thumbnail Image Credit: Wikimedia Commons / Mall of America Interior