Headlines Can Lie—Data Doesn’t
The headlines will tell you everything is fine, but the data is quietly screaming a different story: the U.S. consumer is cracking. You can spin narratives, blame politics, or cling to “resiliency,” but when you dig into the actual numbers, it’s clear the average American is feeling the squeeze.
Make no mistake: consumers in the U.S. economy are one of the biggest powerhouses. If they pull back on spending, it impacts the entire economy in a big way.
For investors, there are both opportunities and risks when the U.S. consumer starts cracking. So, be mindful.
Why Consumer Spending Matters So Much
Before going into details, know that there’s a reason why after the financial crisis, President Obama announced the “Cash for Clunkers” program. There’s a reason why during the pandemic of 2020, the U.S. government—under President Trump and President Biden—handed out massive sums of money to consumers.
In fact, look back at any previous economic slowdown in the U.S. economy, you’ll notice that to get out of it, the U.S. government and the Federal Reserve had their eyes on how consumers were acting and feeling.
You see, when Americans have money in hands and feeling rosy, they go out and shop. This translates into businesses selling more, producing more, hiring more, and the economic machine keeps running.
On the other hand, when Americans aren’t doing too well; you get decline in sales at business, layoffs, and so on.
The Data Is Clear: Average Americans Are Struggling
I don’t think this is an outright collapse situation, but it’s starting to look like consumers are watching their pockets, and their sentiment isn’t as rosy. This is enough to wear the proverbial skeptical hat on and pay close attention.
Consumer Sentiment Is Falling—Fast
Let’s talk sentiment.
Looking at the University of Michigan Consumer Sentiment Index—one of the most quoted measures of how Americans are feeling about their finances, economy and buying—it continues to decline.
Just take a look at the chart below to get some perspective. You do not want this chart to trend lower if you want robust growth in the U.S. economy.
Remember: a person concerned about their job, affordability, and being crushed by bills rarely goes out to buy that bigger house, fancier car, or coolest gadgets.
Corporate America Is Ringing the Alarm Bells
This is important because companies generally see things turning before it shows up in official economic data. And right now, deal-hunting is becoming a major theme—even among high-income earners.
- Dollar General Corp. (NYSE: DG) recently said high-income earners are becoming their customers—and this trend is accelerating. (Source)
- Dollar Tree Inc. (NASDAQ: DLTR) says high-income earners are their fastest-growing customer group.
- Chipotle Mexican Grill (NYSE: CMG), Cava Group (NYSE: CAVA), and Sweetgreen (NYSE: SG) report that customers aged 25–35 aren’t visiting as often.
- All three chains have lowered their forecasts.
Have you seen their stock charts lately?
But that’s not all. The list of companies reporting that Americans are watching their wallets is getting larger. Home Depot (NYSE: HD), Target Corp. (NYSE:TGT), and others have said the same.
Once again, this is widespread, not limited to just one demographic.
Subprime Borrowers Are Cracking – It’s Not Just High-Income Earners Getting Squeezed.
Take a look at subprime car loan borrowers for example.
In October, subprime auto loan defaults hit a record high. (Source) According to data from Fitch Ratings, in subprime auto loans at least 60-days past due surged to 6.65% – highest since 1990s when the firm started to track the data.
It can’t be stressed enough: this is not a one demographic issue.
And, this is not a small thing—this is a major warning sign.
What’s Next?
Right now, we are told the consumer is resilient and there aren’t many problems. You will be told: “Look at New York real estate—it’s hot!” Or they’ll point to a low unemployment rate.
But the fact is average Americans are clearly feeling the pressure. One has to question whether they’re on the cusp of cutting back more spending.
If Americans become more pessimistic, and start cutting back on spending further, watch out.
Once again: if the consumer struggles, the U.S. economy follows.
Where’s the Opportunity—or the Risk?
The simple thesis: be cautious with consumer discretionary.
If consumers aren’t doing well, it’s not a wild idea to think they won’t be spending aggressively on “wants.”
Consumer discretionary stocks have seen a big run-up since the 2020 lows. Since late 2024, performance hasn’t been stellar either (looking at XLY). Yes, these stocks recovered after the April 2025 sell-off, but haven’t done much since mid-September.
As I write this, XLY is down little over 8% from its September 2025 highs. This hints that investors are already feeling uneasy holding it.
But that’s just one area to be careful.
Consumer Staples: Worth a Look
If you’re worried about your job or finances, you don’t stop buying laundry detergent.
On top of this, there’s constant noise about inflation—so could consumer staple companies actually maintain pricing power and keep their financials stable?
Staples (looking at XLP) have been range bound for a while now. But, recently there has been some life in them. Worth watching.
Could money leave discretionary and move towards staples? It’s possible.
Health Care and Utilities Also Make the List
Outside of staples, healthcare and utilities could also be worth exploring too.
These sectors tend to benefit when the economy slows and consumers prioritize essentials.
You pay your utilities bills regardless of where you think the economy is going. If you need healthcare, the state of the economy doesn’t really matter.
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