Spending Holds On Despite Heightened Economic Uncertainty

Spending had a weak start in 2025, but rebounded in February

At the close of the summer in 2024, we wrote about how a boost in Morning Consult’s consumer spending never materialized as it did in 2023. While spending softened in 2024, it strengthened at the year's end, averaging just below the previous two years after adjusting for inflation and seasonality. Furthermore, 2024 was a year coming on the heels of particularly strong spending strength in 2022 and 2023. Many explained this strength as “revenge spending” – after pandemic-related lockdowns, armed with excess savings and a desire to invest more on experiences, many consumers spent heavily to compensate for lost time.

However, average spending took a nosedive in January 2025, with the weakest start to a year since tracking began. Amid recent gloominess in consumer sentiment, heightened economic uncertainty, and sharp stock market declines beginning in late February, dampened spending was yet another bad sign for the U.S. economy. Once again, though, consumers showed their persistent strength, rebounding spending again in February. Increases were broad-based across all income groups, but high-income households appear to be driving the most strength so far in 2025. 

All income cohorts rebounded in February, but high earners continue to drive most of the continued spending strength

Although households of all incomes improved their spending in February relative to January, only high-income households (those making $100k or more annually) reported stronger spending in January and February of 2025 compared to the previous two years. While January was weaker this year for middle-income households (those making $50k-$99k annually), February was moderately stronger than the last two years. Low-income households had the weakest spending compared to previous years: January was below the last two years, and February was around the same as 2024, muted from 2023. 

This continues a trend we’ve seen in Morning Consult’s economic data: high-income adults are increasingly likely to be supporting spending and economic strength.

Compared to a year-ago, high-income households spent more across most goods and services, especially discretionary ones

Most of the increased spending this February versus last came from high-income earners’ spending on discretionary categories. Increases were broad-based across discretionary categories tracked, with the most substantial spending increases being for apparel and hotels. High-income households generally have more wiggle room in their budgets to allocate to discretionary spending, and thus they have greater flexibility to have months with increased splurging. However, spending on discretionary categories is more “easy-come-easy-go” for wealthier consumers. So while they can decide to splurge easily on these “nonessential” categories, they can just as quickly pull back when they feel they need to tighten their belts. 

Despite more negative “vibes,” consumers are doing reasonably well overall

February’s rebound in spending reminds us that although uncertainty about the future economic outlook is high, causing consumer sentiment to dip, real-time measures of consumer health paint a rosier picture. Morning Consult’s U.S. Consumer Health Index (CHI) combines high-frequency consumer sentiment and employment data to create a real-time metric tracking consumer spending demand. The consumer sentiment portion of the index comes from the personal consumer finances index, one of the five subindexes of the Index of Consumer Sentiment. At the same time, the employment data comes from Morning Consult’s unemployment index. In combination, these two indexes (comprising the CHI) can more accurately portray consumers' ability and appetite to spend based on how they feel about their finances and whether they’re receiving a regular income through employment. 

Across all income cohorts, CHI scores declined through the first few quarters of 2024 as consumers became increasingly fatigued by and unwilling to accept elevated price levels while employment levels began softening somewhat. However, CHI began rebounding through the end of 2024 and continued into the new year as consumers’ view of their personal finances continued to improve, and employment levels firmed up slightly.

High-income consumers have had particularly robust CHI scores recently, reaching a level not seen since the high when tracking began in late 2021. Elevated CHI scores from higher earners suggest that their willingness to spend in the near term will likely remain strong barring rapid changes in their personal finances or employment situation. 

Downside risks are present and could cause disruptions rapidly 

Despite continued positive signs from consumers with regard to their spending, several downside risks can’t be ignored. High-income adults are in a better position than their lower earning peers to continue to keep their spending elevated, especially considering they have more of a savings buffer, but even they could be spooked into reigning it in. Because they’re more likely to own equities, declines in the stock market tend to affect higher income consumers’ sentiment more. With the implementation of new tariffs (not fully known in terms of their extent) on April 2nd, we could see more stock market declines, which have dropped sharply on every previous day of tariff implementations. However, unless this leads to a broader global slowdown in the near term, what is most likely to put a dent in higher earner’s spending is material worsening in their employment outcomes, which could come from heightened business uncertainty. 

In addition, consumers are reporting price sensitivity near highs, meaning that a greater share of consumers are walking away from completing purchases with higher-than-expected prices. With inflation rebounding somewhat in recent months from its lows in September of last year and proposed tariffs likely to increase prices further if implemented as proposed, consumers would likely be more unwilling to deal with potential price hikes, unlike the last time inflation surged. Furthermore, before tariffs have entirely gone into effect, we’ve already seen a tightening in supply chain indicators in Morning Consult data, providing more upward pressure to prices.