Is the U.S. Consumer Really Doing Fine? What the Headlines Aren't Telling You

If you've watched the news lately, the story on the American consumer sounds like good news all around. Retail sales just set a record. Household wealth touched an all-time high of $174 trillion. The job market, while cooling, is still adding positions.

So why do I keep telling clients to look a little closer before they relax?

Because the headline numbers and the numbers underneath them are telling two different stories. And as a financial advisor, it's the gap between those two stories that I spend most of my time thinking about.

Record Sales, but Not Real Growth

Retail sales hit $763.7 billion in May, up nearly 7% from a year earlier. That sounds strong — until you strip out inflation. Adjusted for rising prices, real retail sales have essentially been flat since April 2021. Five years of "growth" that, in real terms, hasn't happened.

In plain terms: Americans aren't buying more. They're paying more for the same amount of stuff. Of that record $763.7 billion, roughly $606 billion reflects actual goods purchased in 2021 dollars — the rest is just inflation showing up as a bigger number on the receipt.

That's not collapse. Consumers haven't pulled back the way they did in 2008 or 2020. But a five-year plateau in real spending is worth paying attention to, not celebrating.

A Growing Share of Income Comes From Washington, Not Paychecks

Here's a number that doesn't make it onto the evening news often enough: government transfer payments — Social Security, Medicare, Medicaid, unemployment insurance, and similar programs — now make up roughly 19% of real personal income in the U.S. That's more than double the share it represented in 1970.

Strip transfer payments out of the $20.5 trillion in real personal income reported for May, and you're left with about $16.6 trillion of income actually earned through work, investments, or business activity. The remaining $4 trillion exists because the government wrote a check — much of it funded by borrowing rather than tax revenue.

That matters for two reasons. First, it means a meaningful slice of consumer spending power is tied to deficit spending rather than organic economic activity. Second, since these payments are largely borrowed rather than collected in taxes, they add to the money supply in a way that can feed the same inflation eating into household budgets in the first place.

Savings Are Thinner Than They've Been in Almost Two Decades

The personal savings rate — the share of after-tax income households set aside — fell to 3% in May, the lowest reading since the 2007–08 period outside of the pandemic. For context, the historical norm has run closer to 6–12%, depending on the decade. The 1970s averaged over 12%. Even the 2010s, not a banner decade for savers, still managed roughly 6%.

A savings rate this thin can mean one of two things: households are confident enough in their future income that they don't feel the need to save, or they're running low on cushion and spending because they have to. Given that delinquencies on credit cards, auto loans, and student loans have been climbing at the same time, the second explanation looks more likely than the first.

Wages Are Gaining on Rent — But Haven't Caught Up

There's genuine good news buried here too. Since mid-2022, wage growth has outpaced rent growth for a sustained stretch — a real reversal after years of renters losing ground. But even with that recovery, the average paycheck still buys noticeably less rent than it did back in January 2015. Two years of gains have only clawed back part of what nearly a decade of rent increases took away.

Two Genuine Bright Spots

To be fair, it's not all warning signs. Household net worth is at a record $174 trillion, and the labor market — though clearly slowing, with recent monthly job gains revised sharply lower — is still adding positions rather than shedding them. Those are real positives, even if the wealth gains are concentrated among households that already own stocks and real estate.

Why This Matters for Your Financial Plan

None of this means a recession is imminent, and nobody should read these numbers as a signal to panic. But it does mean the strength getting celebrated in the headlines isn't the whole picture. A consumer economy that's leaning more heavily on government transfer payments, saving less, and still catching up on years of rent outpacing wages is a more fragile foundation than "record retail sales" alone suggests.

This is exactly why we build financial plans around more than the headline of the month. If you'd like to talk through what these trends could mean for your portfolio, your cash reserves, or your broader financial plan, I'd welcome the conversation — just reach out.

Data and analysis referenced in this article draw on Federal Reserve Economic Data (FRED), the Bureau of Labor Statistics, and market commentary from Dunham & Associates Investment Counsel, Inc.

This article is for general informational and educational purposes only and should not be considered investment, tax, or legal advice. Please consult with a qualified financial professional regarding your specific situation.