Watch NRF's State of Retail & the Consumer for a snapshot on why we are comparing the U.S. consumer to a bodybuilder.
Late last year I started referring to the U.S. consumer as the “bodybuilder” consumer. Juiced by $10 trillion in stimulus during the pandemic, the U.S. consumer has been doing all the heavy lifting in our economy.
Consumer spending over the last few years has accounted for almost 70% of GDP — much higher than historical norms. However, like a bodybuilder, the U.S. consumer doesn’t have much body fat. And without a constant flow of energy — in the form of growing wages, high levels of employment and moderating inflation — this powerhouse of our economy runs a risk of grinding to a halt.
So, how did we get here?
Pandemic-era stimulus led to over $2 trillion in excess savings, which allowed consumers to spend heavily as inflation kicked in, in 2021 — exacerbating the inflationary environment even further. Driven by a consumer with funds to spend, retail sales from 2020-2024 grew at over 7% — exactly double the rate of growth for the 10 years before 2020.
Since then, wages have started to slow, and consumers have been digging into those excess savings. As of today, those excess savings are not only gone; the consumer has almost $1 trillion less in savings than would have been expected at pre-pandemic savings rates.
Despite the deterioration of excess savings, our economy has continued to benefit from a consumer that has been willing to push a larger share of their disposable income into spending. Buoyed by record levels of household wealth, a strong job market, rising wages and softening inflation, the consumer has shown comfort maintaining high levels of spending.
However, tariffs and their potential impact on the direction of the economy have put the consumer on edge. Consumer confidence has dropped rapidly in recent months and consumers have opted to put away more of their disposable income rather than spending it.
In the last two months, the CNBC/NRF Retail Monitor, powered by Affinity Solutions, has shown month-over-month drops in retail spending. The recent market turbulence is likely to dampen spending even further. The bodybuilder consumer, who has driven our economy forward in recent years, risks running out of fuel. When and if that happens, all bets are off.