Despite soaring inflation and tariff-induced price hikes, American consumers are still opening their wallets, leaving many to wonder: how much longer can this spending spree last?
At a Glance
- Consumer spending continues to climb in mid-2025 despite significant economic challenges.
- The introduction of **new, broad-based tariffs** threatens to dampen future spending growth by increasing prices.
- Major banks report a 4-8% year-over-year increase in credit card spending.
- Despite the spending, overall consumer sentiment remains at historically low levels, signaling underlying anxiety.
Resilient Spending Amidst Economic Crosswinds
In a year where persistent inflation and new tariffs are making life more expensive, the American consumer continues to defy pessimistic expectations. The U.S. economy, still driven by a solid labor market, has seen spending continue to climb, albeit at a cooler pace. Retail sales rose a healthy **0.6% in June 2025**, rebounding from the previous month, while major banks reported year-over-year increases in credit card spending.
This surge seems to contradict the prevailing mood of the country. Consumer sentiment, while ticking up slightly in July, remains well below historical averages. It’s a conundrum that has perplexed experts: consumers are voicing deep concerns about the economy, yet their spending habits don’t fully reflect that anxiety. As J.P. Morgan’s CFO, Jeremy Barnum, noted in a recent earnings call, despite some stress in lower-income bands, **“the consumer basically seems to be fine.”**
Tariffs and Inflation: A Ticking Time Bomb?
However, dark clouds loom on the horizon. With new tariffs taking effect, consumer prices are set to rise further, threatening to finally put a damper on the spending spree. Recent data shows inflation is already stubbornly high, with a **2.7% year-over-year increase in consumer prices** in June.
Even as spending holds steady for now, banks are beginning to see cracks in the foundation. Rising delinquencies on loans and credit cards hint at a growing financial strain among households. Citigroup’s CFO, Mark Mason, has already signaled caution, stating during a recent conference call that he **expects “further cooling” in consumer spending** as the full effects of the tariffs materialize in the second half of the year. It’s a potential tipping point that could change today’s spending resilience into tomorrow’s economic woes.
An Unsustainable Trend?
The gap between anxious sentiment and robust spending is becoming increasingly unsustainable. As tariffs and inflation continue to bite, maintaining current spending levels will be a Herculean task, especially for lower- and middle-income families who feel the pinch most acutely. The bedrock of post-pandemic resilience—accumulated savings and a booming labor market—is beginning to erode. The pressing question is whether the economy can withstand these headwinds without a significant contraction in the consumer spending that powers it.
— Ray Dalio (@RayDalio) April 7, 2025
