US Economic Growth Slows as Consumer Stress Signals Worry

The U.S. economy has shown resilience amid uncertainties, growing at an annual rate of 4.4% in the third quarter of 2025. This marked the fastest growth in two years, driven primarily by strong consumer spending, exports, and business investments. However, as the economy approaches 2026, warning signs surface, raising concerns about the sustainability of this momentum.

Several factors contribute to this uncertainty, including the impending Supreme Court decision on tariffs, the independence of the Federal Reserve, fluctuating energy prices, and geopolitical tensions. While high-income households continue to thrive, consumers outside the top earners are exhibiting signs of financial strain, leading to questions about their spending habits in the near future.

Consumer Spending and Economic Growth

Despite the robust growth rate, many Americans express dissatisfaction with the economy. Inflation remains above the Federal Reserve’s target of 2%, which, coupled with a stagnant labor market, has forced numerous households to rely on savings and credit to manage expenses. Job creation has slowed significantly, with employers adding an average of just 28,000 jobs per month since March 2025. Most jobs are concentrated in industries like healthcare, while manufacturing has either lost jobs or remained stagnant.

Ryan Young, senior economist at the Competitive Enterprise Institute, noted, “It’s low hire and low fire, and what that means is that people are scared. There’s so much uncertainty that they’re holding steady.” This cautious approach to employment has led to a stable unemployment rate of 4.4%, as companies prefer to retain existing workers rather than risk layoffs.

Consumer spending, which constitutes approximately 70% of U.S. economic activity, has increasingly relied on high-income households benefiting from stock market gains and other investments. A report from the Bank of America Institute highlighted that spending among the top third of income earners increased by 4% over the year leading into November, while spending among the lowest third rose by less than 1%.

Rising Credit Dependency and Inflation Challenges

The financial strain on lower- and middle-class consumers is becoming more evident. Many are turning to credit cards to manage expenses, with a Bankrate survey revealing that nearly half of American consumers with credit cards carry a balance. Among those, 61% have been in credit card debt for over a year. This trend is concerning, especially as personal savings rates have steadily declined, dropping to 3.5% in November from 5.5% in April.

Young emphasized, “Even though consumer spending is up and staying strong, savings are going down, and that’s not sustainable.” He added that declining savings and investment rates are detrimental to future economic growth, particularly as many households already face significant debt challenges.

Inflation remains a pressing issue, with rates hovering around 3%. Recent data from the Federal Reserve’s preferred gauge indicates that prices rose by 2.8% in November compared to the previous year. While this represents a decrease from the highs experienced during the COVID-19 pandemic, prices remain 25% higher than pre-pandemic levels.

The Federal Reserve, led by Chair Jerome Powell, faces mounting pressure to adjust interest rates in response to these inflationary trends. Officials are hesitant to lower rates despite solid economic growth until they see more progress on curbing inflation.

As the U.S. economy navigates these turbulent waters, the ability of consumers to sustain spending will be critical. The coming months will reveal whether the current growth trajectory can withstand the challenges ahead and what measures may be necessary to support those feeling the financial pinch.