American consumers emerged as the unsung heroes of the economy in 2024, keeping it steady despite challenges from inflation and high Federal Reserve rates. Analysts had anticipated a breaking point for consumers due to these factors, which could have led to job losses and slowed growth. However, consumers proved to be resilient throughout the year, much to the surprise of industry leaders such as Bank of America CEO Brian Moynihan and JPMorgan Chase CEO Jamie Dimon.
The economy managed to stabilize without a hard landing, which was previously thought to be impossible. Bank of America economist Stephen Juneau expressed optimism about the economy, expecting the Fed to gradually reduce rates over the next five quarters, reaching 3% by late 2025. This stabilization is expected to support real wage growth and consumer spending, a stark contrast to earlier forecasts of potential “pain” points for households.
Businesses are anticipating a strong holiday spending season ahead, with Bank of America data showing that millennials and Gen Z are planning to spend significantly more than older generations. Overall, holiday spending is expected to increase by 7% compared to 2023. Despite the higher spending, a large percentage of millennials and Gen Z respondents anticipate feeling financial strain and plan to seek discounts.
Looking ahead to 2025, Juneau believes that Fed rate cuts will keep consumers engaged and could spur housing market turnover. Lower rates may lead to increased spending by new homeowners on durable goods like appliances. The slowdown in the housing market has already impacted demand for DIY products, with companies like Lowe’s and Home Depot reporting declines in sales.
Overall, there are reasons to be optimistic about the consumer outlook in the near- and medium-term. With inflation decreasing, purchasing power increasing, and Fed rate cuts expected, consumers are likely to remain in a positive position going forward.