ECONOMYNEXT – American consumer spending slowed in the first half of 2025, as increased trade policy uncertainty around tariffs led to lower household spending, according to Fitch Ratings’ latest US Consumer Health Monitor.
“As tariff-related cost pass-throughs to goods increase inflationary pressure, the economy could take a stagflationary turn later this year,” said Olu Sonola, Head of US Economic Research, Fitch Ratings.
A cooling labor market will also likely limit further gains in consumer confidence, the ratings agency said.
America is Sri Lanka’s largest export market, particularly for apparel.
The full statement by Fitch Ratings is reproduced below:
U.S. Consumer Spending Slows Sharply as Labor Market Weakens, Tariffs Raise Inflation
Fitch Ratings-New York-21 August 2025: U.S. consumer spending slowed significantly in the first half of 2025, decelerating from the robust pace seen in late 2024, according to Fitch Ratings’ latest U.S. Consumer Health Monitor. Increased trade policy uncertainty and equity market volatility weakened consumer sentiment and confidence, leading to lower household spending. A cooling labor market further constrained household income.
“As tariff-related cost pass-throughs to goods increase inflationary pressure, the economy could take a stagflationary turn later this year,” said Olu Sonola, Head of U.S. Economic Research. “Higher prices are expected to hit goods categories first, likely weakening consumer spending ahead of the holiday season.”
Consumer spending growth dropped to 0.5% in 1Q25 and 1.4% in 2Q25, down from 3.7% in 3Q24 and 4.0% in 4Q24. Services spending slowed, rising just 0.6% in 1Q25 and 1.1% in 2Q25. Durable goods spending declined by an annualized 3.7% in 1Q25. Goods spending has remains volatile due to the tariff shock. Fitch expects consumer spending growth to average 1.8% in 2025–2026, a significant drop from 2.8% in 2024.
Consumer net worth fell by 0.9% in 1Q25 as tariff concerns weakened equity market performance. However, U.S. Federal Reserve data shows consumers maintained steady liquidity despite tariff-driven market turbulence, with deposits accounting for roughly 10% of total assets.
U.S. household real estate equity declined after peaking in 2025 as home prices softened. The U.S. housing market has cooled due to elevated mortgage rates and ongoing affordability constraints.
Consumer confidence and sentiment bounced back in May after a steady decline from December 2024 to April 2025. However, a cooling labor market will likely limit further gains in consumer confidence.
Related Content: U.S. Consumer Health Monitor – 3Q25
The full report is available at www.fitchratings.com or by clicking the link above. (Colombo/Aug26/2025)
