5 signs the U.S. economy remains strong despite slowing GDP growth

• The US economy continues to operate at full capacity despite the slowdown in GDP growth in the first quarter.
• Carson Group strategist Sonu Varghese highlighted five economic indicators that show strength.
• “The workhorse of the U.S. economy remains the consumer, and there really aren’t many signs of slowing down,” Varghese said.

The U.S. economy is firing on all cylinders despite a slowdown in GDP growth in the first quarter, according to Sonu Varghese, global macro strategist at the Carson Group.

Varghese highlighted five economic indicators that show continued underlying strength in the U.S. economy, giving him little reason to worry as the job market continues to advance.

“The workhorse of the U.S. economy remains the consumer, and there really aren’t many signs of slowing when it comes to household spending,” Varghese said in a note last week. “In fact, spending on services, which represents 45% of the economy, has grown at an annualized rate of 4%.”

This 4% growth rate is more than double the 1.8% growth trend seen from 2010 to 2019, according to Varghese, and it represents the fastest pace of growth since the third quarter of 2021.

“The current strength in consumption is directly linked to the strength of American household finances,” Varghese said.

It is these five indicators that give Varghese confidence that the American consumer, and therefore the American economy, remains on solid footing.

1. Income growth outpaces inflation

Despite high inflation, wage growth continues to outpace inflation growth, ultimately a boon for consumers.

Disposable income grew at an annualized rate of 4.8% in the first quarter and employee compensation rose 7.8%. Meanwhile, PCE inflation increased by 4.4%.

“This is the simplest explanation for why consumption continues to be strong,” Varghese said.

2. The average hourly wage also exceeds inflation

High-income earners are not the only ones to see their salaries exceed inflation. The average daily worker is also seeing their income grow faster than the rate of inflation.

“Inflation-adjusted hourly wages increase even when you consider the average worker and separate non-managers from managers,” Varghese explained.

This is important because non-executives tend to spend more of their income on salaries. It is therefore important that they see their salary growth exceed inflation.

3. Consumer balance sheets are strong

The continued rise in stock markets and housing prices means that Americans are wealthier today than they have ever been.

U.S. consumers collectively held $176.7 trillion in assets as of December 31, and their debts have not been growing as quickly as their assets.

This means that consumers have ample room to spend money and save less, making it no surprise that the U.S. consumer savings rate has steadily declined over the past few years, reaching 4.2% today, compared to 7.4% in 2019.

“This is not surprising given the higher net worth. Why save more if you are worth more?” said Varghese.

4. Consumers have the ability to borrow more

At all income levels, consumers are carrying less debt relative to their income than they have in decades.

The household debt service ratio, which measures debt repayment as a percentage of disposable income, stood at 9.8% in the fourth quarter of 2024. This is significantly below the peak of 13.3% reached in 2007 and the historical average of 11.2%, and this suggests that consumers have great flexibility to borrow more money and consumption if they must.

“Across all income categories, liabilities as a percentage of assets are much lower than we have seen historically. In short, households are significantly less in debt than in the past,” Varghese said.

5. The job market still resists

“The job market is the whole game for the consumer. If the job market deteriorates, incomes fall, consumption falls and the economy is in trouble,” Varghese said.

And so far there are no signs of that happening. “We have the opposite now,” Varghese pointed out.

The unemployment rate has remained below 4% for 26 consecutive months, the longest streak since the late 1960s.

Meanwhile, there are still more than one job opening for every unemployed person, and weekly jobless claims continue to be at historically low levels.

“Ultimately, here’s what’s important to keep in mind: Consumption makes up 70% of the U.S. economy, and right now, consumption is strong thanks to strong labor markets, which push incomes above the rate of inflation, and to higher net worth, which means households can spend more,” Varghese concluded.