Ours is a consumer economy and has been since later in the 19th century. Consumer spending accounts for about 68 to 70 percent of the U.S. gross domestic product (GDP). That means, a large portion of the U.S. economy’s overall production and income comes from the goods and services purchased by households and individuals. Simply put, the U.S. and its enviable economy are heavily reliant upon, and closely tied to, how much consumers spend on goods and services.
As more sophisticated economists and political commentators discuss tariffs as a trade war between nations, threatening international relations and alliances that protect this country from aggression, I would like to hit the pause button. I would like to make a simpler point: If this is a consumer economy, the underpinning of our economic growth, then spiking prices cannot be good for economic growth.
According to Reuters, consumer spending declined in January 2025. It dropped by 0.2 percent. A small amount? Don’t be so sure. According to the Commerce Department, it was the first monthly decline since March 2023 and the largest decrease in nearly four years. That initial drop in spending came despite increases in both wages and savings. That is a decline in spending caused by fear and depression—not economic depression, our psychological depression. The result will be more fear and greater unhappiness. It is a self-perpetuating downward spiral. Yup, our economy is as much about psychology as anything else.
Americans have rarely been pessimistic about our economy, and we were right. Every generation did better than the last. Until it didn’t—until now. Now as this generation reaches adulthood, graduates from college or high school and looks around, they can’t find a job. They can’t find a place to rent, and they can’t afford to buy. This generation is looking back over its shoulder at their parents and grandparents with envy.
Meanwhile, their parents and grandparents are concerned about rising prices due to the potential impact of tariffs. As they face retirement and fixed incomes, they are concerned about higher taxes. High-inflation expectations are making consumers hesitant to spend.
Increased uncertainty about the economic outlook and job security is also contributing to a more cautious approach to spending. Among the stressed-out generations, old and young, lower consumer confidence is leading to more cautious spending habits.
In 2025, consumer confidence is down 11 percent, directly impacting consumer spending. As a result, demand for goods and services by individuals is down. That demand drives production, employment, and economic activity in all sectors. It is important to understand what factors contribute to a slowdown in spending. According to McKinsey & Company, employment rates, inflation, income levels, and consumer confidence combine to control spending patterns. It is not “all in our heads.” The causes are more than what we worry about—they dictate what we are able to do.
Some consumers are facing difficulty with car payments, rent, and mortgages, leading to a reduction in overall spending. Consumers are pulling back on non-essential spending, such as dining out and travel, due to the cost of necessities. As the cost of necessities rise, as salaries do not keep pace with prices, consumes must cut back.
High-income spenders, a smaller segment of the population, have a disproportionate influence on overall consumer spending. According to Fortune Magazine, as upper-income spenders are willing to pay more, they force prices upward: “America’s consumer economy is hostage to its top earners—and that could mean trouble down the road.”
There is more…
According to a CNN analysis, at least 121,000 federal workers were fired in the first 100 days of Trump’s second term. That number does not include voluntary buyouts or those placed on administrative leave.
If consumer spending makes up a significant portion of the U.S. GDP, as much as 70 percent, then it plays a crucial role in driving economic growth. If the ability of American consumers to spend is eroded by unemployment, higher taxes, much higher prices due to tariffs and an induced inflation, then economic growth slows. This is all imposed by choice. This script, as written, appears to be to cause the bottom to drop out of our economy. If it was a conscious choice to create this perfect storm, then we have three choices: The architect of this brutal new reality is stupid, mean, or crazy.
The architect is stupid and, therefore, unaware of the consequences of his decisions. He is mean and doesn’t care about the negative impact his choices will have on real people and the American economy. He is crazy and likes to destroy—breaking all the toys makes him happy.
Less important than the cause of the behavior is the destructive effect. It can wipe out individual lives and an overall economy. Even if we can stop it. Even if we can turn it around, sweep up the debris, and build anew, it is going to hurt, it is going to hurt all of us. Think you have enough money to ride it out? I hope you do, but it better be a huge amount of money—like the top one percent or 0.1 percent.
Reality, like facts, is a hard thing that does not yield to denial. Whether you voted for Trump or not, whether you believe the predictions and the analyses or still believe in him, whether you believe some version of this madness wherein you benefit, it will not change the extent of the damage. It will not change the degree to which it is going to hurt… everyone.
