Dear Valued Clients,
As 2024 concludes, we offer our warmest wishes for the holiday season and a prosperous New Year. December is often a time for both reflection and forward-looking anticipation. In this month’s economic commentary, we examine both the resilience of the U.S. economy and the challenges that warrant a cautious approach as we enter 2025. This analysis is an essential part of our commitment to your long-term financial success.
A Resilient Economy on the Surface
A wave of encouraging economic data was released last month. The U.S. economy demonstrated resilience in 2024, with third-quarter GDP growth revised upward to 3.1%. Consumer spending has been a key driver, rising at an annualized rate of 3.7% in Q3—its strongest performance since early 2023. The holiday shopping season has maintained this momentum, with retail sales on track for a 3.5% year-over-year gain. This spending strength reflects improving household disposable income. Real wages are now outpacing inflation, with average hourly earnings up 1.3% year-over-year after accounting for inflation. Concurrently, the personal savings rate, a key indicator of financial health, climbed to 4.4% in November from its July low of 2.9%.
Uneven Recovery: The Bifurcation of the U.S. Consumer
Beneath these encouraging aggregate metrics, the recovery has been far from uniform. While higher-income households have leveraged rising real wages to boost both savings and discretionary spending, lower-income families face mounting financial pressures.
Credit card delinquencies now exceed pre-pandemic levels, with many lower-income households struggling to manage higher interest payments as borrowing costs remain elevated. Similarly, auto loan delinquencies have approached levels last seen during the 2008 financial crisis, underscoring the financial strain on lower- and middle-income households.
A Tale of Two Retailers: Success and Struggle
This bifurcation in consumer spending is clearly reflected in the retail sector. Households earning over $100,000 drove much of the seasonal holiday spending, splurging on luxury goods and higher-end experiences. In contrast, lower-income Americans have pulled back on discretionary purchases as they grapple with rising costs for essentials like groceries and childcare.
For example, premium retailers like Williams-Sonoma have flourished, while budget-focused chains such as Big Lots and Party City have recently filed for bankruptcy amid rising costs and weakening demand from their core customers…
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