US Consumer Report Card—Fourth Quarter 2024

Overall Score: B+
Trend: Stable
Our outlook for the US consumer remains strong since last quarter based on improved labor market data and consumer sentiment. The overall Western Asset Consumer Report Card grade has remained B+ for two quarters in a row. Although the recent positive consumer trend has been cooling from exceptionally strong readings during the time of peak pandemic stimulus, the current score of B+ (76%) is well above the average score of C+ (55%) seen from 2010 to 2019.

Exhibit 1: US Consumer Report Card—Fourth Quarter 2024

Employment: B+
Trend: Stable
The December unemployment rate fell to 4.1%, reversing the deterioration of the past two months and reducing concerns about a labor market slowdown. Job growth estimates also improved from last quarter as job openings increased in Q4, but the hiring rate is reflecting a weak labor market and lower than levels seen in the past decade. The quits rate also remains depressed at 1.9%. However, the rise in job openings signals further progress toward a lower unemployment rate and suggests that the labor market will continue to support household income and spending in 2025.

Consumer Spending: B+
Trend: Stable
Real consumer spending remained robust with a growth rate of 2.9% year-over-year (YoY). Recent data signaled strong spending growth as nominal retail sales rose by 0.4% in December and core retail sales rose by 0.8% in real terms. The US consumer continues to be a source of strength.

Real Income Growth: A
Trend: Stable
Real disposable income growth declined to 2.6% YoY in November due to slower growth of transfer income (i.e., government program income) and asset income following the declining trend since 2023 highs. Continued job gains and strong real wage growth are expected to drive continued real income growth in 2025, with all income quartiles falling in a narrow range.

Household Balance Sheets: A
Trend: Stable
The annualized rate of growth in consumer credit picked up to 1.7% YoY, led by growth in fixed-rate debt, but continues to grow below long-term trends. Household leverage and debt servicing costs remain low by historical standards despite high consumer financing rates.

Wealth/Net Worth: A
Trend: Stable
The net worth to disposable personal income ratio remains close to the all-time high due to strong asset price appreciation over the past year, skewed toward higher-income households. The savings rate ticked down to 4.4% in November and remains at a level consistent with strong balance sheets and a healthy labor market. It’s expected to remain rangebound for the rest of 2025.

Consumer Sentiment: C
Trend: Stable
University of Michigan’s consumer sentiment index increased by 2.2 points in December from November, but the January preliminary print declined 0.8 points. The Conference Board’s index declined by 8.1 points in December. The January preliminary decline comes from consumers expecting higher rates and tariffs to increase the cost of living. However, both indices showed incremental improvement from September.

Credit Performance: B-
Trend: Stable
Credit card delinquency rates showed signs of leveling off in Q4 as new seriously delinquent and new delinquent credit card balances ticked down. Credit performance deteriorated at a slower pace than in prior quarters, indicating that tighter lending standards are having the desired impact on the high credit consumer.

Consumers saw steady credit utilization reflecting cautious spending trends in November and December. Consumer performance for the 2023 vintage is now on par with that of 2022, which was the worst to date for prime and subprime auto loans. The termination of pandemic-related relief programs, higher inflation, and rising debt levels and interest rates along with looser post-pandemic lending standards have pressured performance for the 2022 and first half of 2023 consumer vintages. We expect performance to stabilize as we begin 2025, supported by tight lending standards, persistently strong household balance sheets and the possibility that a meaningful portion of expected weakness in credit performance has already occurred.

The US consumer remains a source of strength for the US economy, and significant deterioration would be required to return to historical averages. However, bifurcation between the lower- and higher-income consumer is more pronounced in the current economic environment. Affordability remains pressured for lower-income cohorts due to higher asset prices, persistently higher rates, increased insurance premiums and the potential for rising prices amid new tariffs. In this environment, we favor investing in high-quality consumer credit, including private student loans, housing-adjacent consumer sectors and prime auto loans. We remain cautious of subprime consumer assets.

Background on Methodology

Our methodology rationale for creating the US Consumer Report Card first involves ranking economic indicators versus a historical dataset, with tracked periodic changes going back to 1990. We then calculate a weighted average score for each month. Assigned weights range from 24% at the highest to 10% at the lowest. Employment, consumer spending and real income growth make up 40%, while the remaining indicators comprise 60%. The consumer score is mapped against letter grades, normalized for historical experience.