Although American investors cheered the Federal Reserve’s recent rate cut, like Australia, the economy is facing growing headwinds on consumer spending.
Americans’ long-running spending boom is showing signs of faltering as consumers of all income levels scale back and hold out for discounts, leaving the economy on shaky ground.
This shift is most pronounced among lower-income consumers, who are vulnerable to rising prices and other economic pressures eroding their purchasing power.
“U.S. consumer spending is not just softening overall, it’s doing so in a fragmented way … and that’s a real problem,” said Claire Li, a Moody’s vice president of credit strategy. “If the benefits and the pressures are not shared broadly, then we’re not looking at a balanced or a healthy state of the U.S. consumer base.”
Working-class Americans — already up against waning wage growth and rising housing and electricity costs — are easily burned by any increase in grocery prices and tariff-fuelled increases on household staples, apparel and furniture, according to recent Moody’s Ratings report.
They’re dipping into their savings, racking up more debt and pulling back on discretionary spending, according to recent government data, analyst reports and retail executives.
Deposit data from Bank of America found that wage growth for lower-income households slowed in July, dropping to 1.3% year-over-year. Meanwhile, wage growth increased to 3.2% for higher-income households.
Spending in July remained flat for lower-income households but accelerated by 1.0% in the past year for middle-income families and by 1.8% for higher-income households.
While consumers with annual earnings of at least $100,000 increased their spending in the first six months of 2025, those making less than $50,000 a year did almost the exact opposite, pulling back on spending each month.
Australia and especially South Australia has got the same problem.
Since May, Adelaide has entered into a nasty recessionary spiral, as household spending plummets.
Yes, I know that ABS says it’s going up from a very flat base but it you’re standing on Rundle Mall, this story is the lived experience when buyers close their wallets and purses.
In per capita terms the Australian economy is going backwards extending the national current record-long ‘per capita recession’ to nine straight quarters.
This has been caused by steep cost-of-living pressures with prices rising well ahead of incomes.
South Australian households’ real per capita disposable incomes fell by 2.2 per cent in 2023/24 after a substantial fall in 2022/23. People have slashed discretionary spending.
Across Australia, jobs on Seek saw a 5.6% year-on-year decline in May on both trend and a seasonally adjusted basis. Seek is not a very reliable metric but the trend is right.
While moderate global growth is expected to continue, there is a risk that the global economy will be undermined by tit-for-tat tariff trade measures.
The Australian economy is growing at its slowest pace since the recession of the early 1990s, leaving aside the unusual situation of the pandemic.
There is also some fear about how AI will effect jobs, especially in the private sector.
Artificial intelligence is expected to transform the global workforce by 2050, according to reports from PwC, McKinsey, and the World Economic Forum.
Estimates suggest that up to 60% of current jobs will require significant adaptation due to AI. Automation and intelligent systems will become an integral part of the workplace but there is a lot of media spin around AI at the moment.
This weakness in private sector activity is in line with the pessimistic findings of the 2H 2024 Director Sentiment Index,conducted in September last year, which reported considerable pressures from the cost of living, inflation, interest rates and low productivity growth.
New Zealand and Europe are currently in a technical recession, born from massive global inflation and South Australia is not immune.
Look at the price of houses and apartments and the cost of good in your shopping basket.
So if you wonder why clothes, new cars and a raft of discretionary spending products and services are not moving, now you know why.
Will it get better? It will pick up in mid-September and through to Christmas.