Employee sentiment rose in May: Get the latest from the ADP Research Institute’s Data Lab.

MainStreet Macro: Are consumers still all right? An update

May 13, 2024 | read time icon 3 min

Share this

Last week, a measure of consumer sentiment showed that people are more downbeat about their current and future economic well-being than they were a month ago. With the stock market reaching new highs in May, gas prices falling, and unemployment below 4 percent for the longest time since the 1960s, this gloomy shift is puzzling. 

For the past three years, consumers have been the economy’s most consistent bright light, which is important given that they account for about 70 percent of U.S. economic growth. Given this latest mood swing, it’s worth revisiting the question: Is the consumer all right?”

To gauge consumer health, I looked in three places.

Pay stubs

A healthy job market and rising wages have helped consumers keep up spending, even in the face of high inflation.

Our April Pay Insights report showed still-solid growth, with year-over-year pay up 5 percent for people on the job for at least 12 months, and more than 9 percent for people who changed jobs in the past year. 

Moreover, even when adjusted for inflation, earnings have risen from a year ago. That means consumers today are in a better position to weather higher prices.


Inflation combined with interest rates at 20-year highs have put pressure on consumer wallets.  Another way to capture the fiscal health of the consumer is to look at how much they can save every month. 

Consumers are saving about 3 percent of their disposable income after spending on necessities such as food and rent. That’s down significantly from the historical average of 9 percent and way down from the peak hit in the aftermath of the pandemic, when savings rates surged to more than 30 percent.

As savings tapering off, some economists and business leaders are concerned that consumers will start funding more of their purchases with debt.

The good news is that consumers started the year with low debt.  Debt payments as a percent of disposable income at the end of 2023 were below pre-pandemic and historic levels.


The third place to check the health of the consumer is their receipts: What types of things are they spending money on?

After starting the year on a weak note, the year-over-year change in real consumer spending accelerated from 1.8 percent in January to more than 3 percent in March.

That’s a good sign for future spending, but context is important. While spending on services such as concert tickets and spa treatments continues to grow, consumers are spending a little less on big-ticket items such as cars and furniture.

My take

Inflation is like fish that has stayed in the fridge too long. It makes everything else smell bad, regardless of its quality.

Right now, the economy has a lot of high-quality metrics in its favor, but the stink of too-high inflation is keeping consumers from fully embracing even good economic conditions.

Over time, inflation could continue to erode consumer confidence in the economy. If it goes on too long, people might change their behavior and do the very thing that would slow growth¾ curtail their spending.   

This week, we’ll get new data on inflation and retail sales. Both are important indicators of the state of the consumer. We’ll learn whether spending in 2024 has continued to hold up under high prices.

For now, our checkup finds the consumer in good shape. But with prices still rising too quickly, borrowing costs high, and savings rates and historically low levels, we need to keep a watchful eye on consumer health. As goes the consumer, so goes Main Street and the economy.