In 2024, economic contributions from entities like the Federal Reserve, mega-cap stocks, and significant banks were notable, but ultimately, American consumers were credited with stabilizing the economy. Throughout the year, analysts predicted that consumers might reach a breaking point due to inflation and high Federal Reserve rates potentially curbing spending. While this could have helped manage inflation, it also posed a risk of job losses and slowed economic growth.
Contrary to expectations from industry leaders such as Bank of America CEO Brian Moynihan and JPMorgan Chase CEO Jamie Dimon, consumers displayed resilience. Bank of America now anticipates a positive economic outlook extending through 2025.
Analysts are optimistic about the economy’s stabilization without experiencing a hard landing, a previously uncertain outcome. Economist Stephen Juneau from Bank of America recently voiced a constructive outlook, forecasting a gradual reduction in Federal Reserve rates over the next five quarters, potentially reaching 3% by the end of 2025. This trend is expected to bolster real wage growth and consumer spending, counteracting earlier forecasts of household financial strain.
Consumers have generally adapted to higher rates, despite the increased costs of mortgages and debt service. The limited mobility in the housing market has reduced spending on home-related purchasing, as homeowners were reticent to assume higher mortgage rates. Juneau noted this could shift when lower Federal rates eventually “unfreeze” the market, enabling more consumer movement and associated spending.
Businesses are preparing for a busy quarter, with Bank of America data indicating that millennials and Gen Z are anticipated to spend $4,000 and $3,300, respectively, during the holiday season. In contrast, older generations plan to spend less, with Boomers intending to spend $800 and Generation X $1,200. Overall spending is expected to rise by 7% compared to 2023. Despite the anticipated higher spending, 68% of millennials and Gen Z respondents foresee financial strain and are planning to seek discounts. Mary Hines Droesch, Bank of America’s head of consumer banking, noted that early holiday shopping plans indicate consumer confidence in their financial health.
Looking toward 2025, Juneau remarked that anticipated Federal Reserve rate cuts will keep consumers actively engaged in the market. Lower rates might stimulate activity in the housing market, as new homeowners typically purchase durable goods such as appliances. The slowdown in housing has already impacted demand for DIY products, with Lowe’s reporting a 5.1% decline in comparable sales in the second quarter, and Home Depot adjusting its annual sales forecast downward.
Overall, Juneau expressed optimism about consumer behavior, citing reduced inflation, increased purchasing power, and expected Federal Reserve cuts as reasons to remain positive about consumer prospects in the near and medium term.
