US consumers ‘resilient and strong’ in face of high prices and interest rates

Stay informed with free updates

Simply sign up to the US economy myFT Digest — delivered directly to your inbox.

US consumers continued to open their wallets at the start of 2025 after a $1tn spending spree during the holiday season, overcoming pressures from higher borrowing costs and years of elevated inflation.

Retailers rang up $994bn during the 2024 holiday season, with sales rising 4 per cent year on year, the National Retail Federation said. The rate of increase surpassed the trade group’s forecast and accelerated from 2023.

Also this week, the nation’s largest banks reported higher earnings in the fourth quarter, in part a reflection of consumer activity.

Consumers spent $924bn in total on the debt and credit cards issued by Bank of America, Citigroup, JPMorgan Chase and Wells Fargo in the final three months of 2024. That was up 5 per cent from the prior three months — the highest year-end increase in three years.

Spending was still “growing robustly” at the start of this month, JPMorgan analyst Bennett Parrish noted, citing credit card data compiled by the biggest US bank by assets.

“Consumers are doing their thing, driving the economic train,” said Mark Zandi, chief economist at Moody’s Analytics. “There is no real signs that the growth of spending is slowing.”

Big-box merchant Target cited stronger revenue from toys and cosmetics over the holidays as it upgraded comparable sales guidance for the fourth quarter.

“The American consumer is resilient and strong,” Rick Gomez, Target’s chief commercial officer, said at an industry conference this week.

Earlier in the month, warehouse club chain Costco reported a 9.3 per cent year-on-year rise in US same-store sales in December, with the strongest gains coming from non-food departments such as jewellery, gift cards and toys.

Retail sales figures are not adjusted for inflation, which has been slow to subside since the pandemic. Data released this week showed core inflation, which excludes volatile food and energy costs, fell to 3.2 per cent in December from 3.3 per cent the month before.

Stretched by years of price rises, consumers often waited for markdowns before making purchases. Target cut prices on more than 10,000 items during the holidays, then initiated a clearance sale with half or more off products such as sleepwear and beauty gift sets a day after Christmas.

Gomez said consumers were “resourceful” and “intentional”, working to extend their budgets and buy items that were important to them.

Some households showed signs of strain as they spend long after the disappearance of savings built up during the pandemic. In the first nine months of this year, banks charged off $46bn in credit card debt that was deemed unrecoverable.

But while delinquency rates rose slightly at a number of the big US banks, they remain historically low for credit cards.

At Wells Fargo, for instance, just 1.6 per cent of their credit card accounts were 90 days or more past due at the end of last year, up from 1.4 per cent at the end of 2023. That was the highest overall delinquency rate for cards among the big four banks.

The cost of buying on credit may remains high as investors scale back hopes for the Federal Reserve to continue trimming interest rates. The central bank’s next monetary policy meeting is at the end of the month.

Donald Trump’s inauguration as president on Monday is likely to usher in new tariffs that retailers warn will inflate the price of goods.

For now, though, consumers have shown little sign of pulling back.

Elias Sabo, chief executive of Compass Diversified, the parent company of several consumer brands including Sterno portable stoves and Lugano, the jewellery maker, said spending was robust from the middle of last year and accelerated after November’s US election.

“We were seeing the consumer, across really all cohorts, spend incredibly well,” he said.