U.S. Consumer Spending Slowdown: IMF Report on Causes and Investor Strategies in 2025
The IMF report highlights why U.S. consumer spending is slowing in 2025, the economic risks involved, and key strategies investors can use to protect their portfolios.
Key Takeaways
✔ The IMF warns that U.S. domestic demand is weakening while high interest rates and tariffs add inflation risks.
✔ Slower wage growth, weaker job creation, and declining consumer confidence are the main drivers of the consumer spending slowdown.
✔ Investors should focus on defensive assets, dividend growth stocks, short-term bonds, and essential consumer sectors.
✔ Monitoring economic indicators and policy changes is critical in this environment.
Why the U.S. Consumer Spending Slowdown Matters
In September 2025, the IMF released a report warning that the U.S. economy is under pressure. The most concerning signs are a slowdown in consumer spending and weaker job growth.
Consumer spending accounts for nearly 70% of U.S. GDP. A sustained decline affects everything from corporate earnings to labor markets and stock performance. Understanding the causes of the U.S. consumer spending slowdown is crucial for investors looking to manage risks and position portfolios effectively.
IMF Report on Causes of the U.S. Consumer Spending Slowdown
According to the IMF, U.S. domestic demand is moderating and job growth is slowing.
From 2022 to 2023, households struggled with high inflation from supply chain shocks. In 2024, higher interest rates and tariff policies added pressure. By mid-2025, these factors combined to weaken household demand, confirming the IMF’s concerns.
Economic Indicators Explaining Why U.S. Consumer Spending Is Declining in 2025
- Inflation (CPI): CPI rose 2.9% year-over-year in August 2025, while core inflation was 3.1%. High costs in essentials like housing and healthcare continue to squeeze budgets.
- Wage Growth: Low-income workers earning under $806 per week saw wage growth slow to just 3.7%.
- Consumer Confidence: Surveys show declining sentiment due to job uncertainty and persistent inflation.
- Spending Growth: Consumer spending rose only 0.5% in July, down from earlier, stronger months.
Expert Insights: IMF and Market Analysts on Consumer Spending
Julie Kozack, IMF spokesperson, said: “Domestic demand is moderating and job growth is slowing.”
An IMF working paper stressed that inflation expectations, slower wages, and weaker labor markets are weighing heavily on spending. Analysts at Bloomberg and the WSJ also cited high borrowing costs and tariffs as structural headwinds for U.S. consumer demand.
Breaking Down the Causes of the Spending Slowdown
- Higher interest rates raising borrowing costs for mortgages, auto loans, and credit cards.
- Sticky inflation in essentials—food, rent, healthcare—reducing discretionary spending.
- Slower wage growth for low-income groups limiting purchasing power.
- Tariff policies pushing import prices higher and straining household budgets.
- Weaker job creation cooling consumer confidence and capacity to spend.
- Uncertainty delaying household decisions on big-ticket purchases.
Comparing Consumer Spending Before and After the Slowdown
|
Factor |
2022–2023 (Pre-Slowdown) |
2025 (Current Slowdown) |
|---|---|---|
|
Inflation (CPI) |
8–9% surge |
2.9% YoY, still above Fed target |
|
Wage Growth |
Strong, especially for low-wage jobs |
3.7% for low-income workers |
|
Consumer Spending |
Strong in discretionary sectors |
Concentrated in essentials, slower growth |
|
Consumer Confidence |
Stabilizing, improving |
Declining on job and price concerns |
Economic and Market Implications of Weaker Consumer Demand
- Corporate earnings: Essential goods and healthcare are more stable, while luxury and durable goods face risks.
- Monetary policy: The Fed is pressured to cut rates but inflation and tariffs complicate decisions.
- Household debt: Rising credit card and mortgage interest payments weigh on budgets.
- Policy measures: Tax relief, subsidies, or tariff changes could help restore sentiment.
What’s Next: Scenarios for U.S. Consumer Spending in 2025
- Gradual recovery if inflation cools and rates decline.
- Prolonged weakness if high borrowing costs and tariffs persist.
- Recession risk if weak jobs and falling confidence lead to further contraction.
Global risks like energy price spikes, geopolitical tensions, and currency swings remain important external factors.
Seven Investor Strategies for a Slowdown Economy
- Rebalance portfolios defensively toward essentials, utilities, and healthcare.
- Prioritize dividend growth stocks for steady cash flow.
- Add exposure to short-term bonds and cash.
- Use inflation-linked assets such as TIPS or hedging ETFs.
- Track shifts in consumer behavior: discount retailers, subscriptions, resale markets.
- Diversify internationally to capture demand outside the U.S.
- Monitor economic indicators like consumer confidence, CPI, jobs, and Fed decisions.
The IMF report makes it clear that the U.S. consumer spending slowdown is driven by multiple forces—interest rates, inflation, wage stagnation, tariffs, and weaker jobs. For investors, adapting to this environment means focusing on defensive assets, dividend payers, and inflation hedges while keeping an eye on consumer trends.
References
- IMF Working Paper – The Rise and Retreat of US Inflation: An Update (WP/25/94)
- IMF Press Briefing – World Economic Outlook, Spring 2025
- Reuters – IMF says US economy showing strains; domestic demand moderating and job growth slowing (Sep 11, 2025)
- Reuters – US consumer spending strong; core inflation warmer on services (Aug 29, 2025)
- Financial Times (FT) – Poorest US workers hit hardest by slowing wage growth
- Barron’s – Consumer sentiment weakens as inflation and labor uncertainty weigh on outlook
- Business Insider – Inflation report August 2025: CPI and core inflation trends
