NRF Panel Part 1 – Consumer Spending and Wealth in 2025: Navigating the Discrepancy Between Sentiment and Behavior
By Carsten Krause, January 13, 2025
As we step into 2025, the U.S. economy presents an intriguing paradox. Consumer spending remains strong, bolstered by robust labor markets and increasing household wealth, yet consumer sentiment surveys suggest lingering pessimism. This dichotomy warrants a closer look at the drivers of economic activity and the disparities across income groups. This is a deep dive on the NRF consumer panel discussion at the National Retail Federations 2025 event press briefing.
The backdrop of this narrative is the U.S. economy’s journey through 2024, marked by heightened debates about inflation, the possibility of a recession, and the concept of a “soft landing.” Despite early warnings, the economy exhibited resilience, driven largely by robust consumer activity and a surprisingly stable labor market. However, beneath this positive headline lies a tale of divergence—between the prosperous and the struggling, between optimism in data and caution in sentiment.
The Economic Backdrop
The narrative of 2024 was defined by debates over inflation, a potential recession, and the elusive “soft landing.” At the start of the year, the New York Federal Reserve’s recession probability index was at a daunting 62.94%, a stark contrast to today’s 29.4% reading. According to the Blue Chip Economic Survey, the percentage of economists predicting a recession within the next 12 months fell from 40% in early 2024 to just 26% today.
“Using that data as a backdrop, the economy remains in pretty good shape,” one panelist noted. “While the first quarter of 2024 showed weakness, strong second and third-quarter performances highlighted the resilience of the economy, with GDP growth now forecasted to be between 2% and 2.5% in 2025.”
Strength in Consumer Spending
Consumer spending, which accounts for 70% of GDP, remains a linchpin of economic growth. Personal income grew by 5.2% year-over-year in late 2024, while consumption of goods and services rose by 5.5%. Labor market strength played a pivotal role, with job growth averaging 190,000 per month in 2024.
“The consumer remains the fulcrum of the economy,” a panelist emphasized. “Momentum from 2024 should continue into 2025, albeit at a potentially slower pace. Labor market stability and wage growth are central to sustaining this trajectory.”
Yet, the data reveals a disconnect: while spending remains resilient, sentiment lags. “People are still comparing today’s prices to 2019 levels, a marker set by the COVID-19 pandemic,” another panelist explained. “Although wages have increased by 22% on average, cumulative price rises have left many feeling less well-off.”
Wealth Accumulation and Income Disparities
One of the most striking trends since the pandemic has been wealth accumulation. Total household wealth soared by $50 trillion, including a $5 trillion increase in Q4 2024 alone. However, this wealth has disproportionately benefited higher-income households.
“The top 20% of earners account for nearly half of consumer spending,” a panelist highlighted. “This masks the struggles of lower-income households, which are more exposed to rising prices and have exhausted their pandemic-era savings.”
Renters and non-homeowners have been particularly affected. “While homeowners benefited from a 60% increase in home values over the past five years, renters faced higher costs without equivalent gains,” a speaker noted.
Inflation and the Role of Services
Inflation’s trajectory remains a focal point. The Federal Reserve’s preferred metric, the Personal Consumption Expenditures (PCE) Index, stands at 2.4%, slightly above the 2% target. “Services prices continue to drive inflation, while goods prices have declined by 1% year-over-year,” one panelist stated.
The labor-intensive nature of services is a key factor. “Wages are sticky downward,” explained another expert. “Unlike goods, where prices can deflate, reducing service costs would require significant unemployment — an outcome we want to avoid.”
The Role of Policy and Uncertainty
Economic policy looms as a wildcard. Issues such as trade, immigration, and regulation remain unresolved, introducing volatility into forecasts. “Uncertainty around these policies could impact economic activity and consumer confidence,” a panelist warned. For example, stricter immigration policies could constrain labor supply, driving up costs and potentially re-accelerating inflation.
Insights for Pro Members
Chart 1: Consumer Spending vs. Sentiment Index (2019-2025)
- Insight:
Consumer spending has grown consistently, while sentiment indices remained unimpressed. The data suggests a clear divergence between economic behavior and perception, driven largely by price sensitivity and wage comparisons to pre-pandemic levels.
Chart 2: Wealth Distribution Across Income Levels (2019-2025)
- Insight:
The top 20% have seen disproportionate wealth gains, driving overall spending resilience. Meanwhile, the lower 50% face ongoing struggles with depleted savings and increased costs of living, reflecting the unequal economic recovery.
Chart 3: Inflation Breakdown: Goods vs. Services (2020-2024)
- Insight:
Services inflation remains elevated, underscoring its role in overall price stability. Goods prices, on the other hand, have seen deflationary trends, reflecting supply chain normalization and consumer demand shifts.
The Road Ahead
Looking forward, the U.S. economy is positioned for steady growth in 2025, albeit with challenges. Addressing income disparities and ensuring broad-based economic benefits will be critical. Policymakers must balance inflation control with growth incentives while managing the risks of geopolitical and supply-side disruptions.
As one panelist aptly concluded, “The U.S. economy’s exceptionalism lies in its resilience, productivity growth, and the strength of its consumer base. These elements will define the path forward in 2025.”
CDO TIMES Bottom Line
The U.S. consumer remains the backbone of the economy, demonstrating remarkable resilience despite headwinds. However, disparities across income groups and lingering pessimism reflect deeper challenges. Policymakers and businesses must navigate these dynamics with precision and agility to ensure sustainable growth in 2025. In a world where the interplay of sentiment and spending defines economic vitality, understanding and addressing these contrasts will be paramount to maintaining economic momentum.
Key Takeaways:
- Consumer Strength vs. Sentiment Disconnect:
Strong spending levels belie subdued sentiment, influenced by lingering price sensitivity and wealth disparities. - Wealth Accumulation Highlights Inequities:
The top 20% continue to drive spending, masking struggles at the lower end of the income spectrum. - Inflation’s Services-Led Trajectory:
While goods prices decline, services inflation’s labor-driven nature underscores the complexity of achieving price stability.
2025 offers significant opportunities for growth, but only if leaders can bridge the gap between perception and reality, enabling all segments of society to thrive.
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