Americans are grappling with rising debt and stagnant wages
New data released on Yesterday indicates that the US economy’s engine may be beginning to sputter, as Americans’ paychecks lose momentum and their debt grows increasingly burdensome. Retail sales remained unexpectedly stagnant during the vital holiday month of December, according to the Commerce Department, falling short of the 0.4% increase that economists had anticipated in a poll. In contrast, retail sales experienced a robust increase of 0.6% in November. In the fourth quarter, reports released on Tuesday indicated that Americans’ wages experienced their slowest growth in over four years, while a larger proportion of households found themselves increasingly struggling with their debt. The data collectively indicates that the world’s largest economy concluded the previous year on unstable ground amid persistent affordability issues. Economists broadly anticipate that larger tax returns, coupled with the Federal Reserve’s series of interest-rate cuts last year, will propel growth. “There has been a lot of damage done the last few years to household finances – with rising inflation, rising cost of living pressures, rising interest rates,” Ted Rossman stated in an interview. “It was as if (consumers) were treading water for a while… but the dam is breaking.” In December, retail sales experienced a decline across the majority of categories monitored by the Commerce Department. Furniture stores and specialized, niche stores, such as florists, experienced the most significant declines in sales — both decreasing by 0.9%. (This data is adjusted for seasonal fluctuations but not for inflation.)
Meanwhile, retail spending saw a modest increase in several categories, with the most significant rise occurring at home improvement stores, which experienced a 1.2% uptick. A measure that excludes volatile sales — including building materials and gasoline — and provides a clearer picture of underlying demand decreased by 0.1% in December, as reported, significantly lower than the 0.4% increase that economists had anticipated. It is a significant metric that economists identify as the “retail sales control group.” The most recent data highlights the pressures faced by US consumers in recent months. Over the past year, hiring in the United States has slowed to a crawl, while people’s feelings about the economy have crumbled and inflation has remained stubbornly elevated. December’s retail-sales figures, which were postponed due to last year’s government shutdown, were released alongside a separate report indicating that Americans’ pay gains have slowed to the weakest pace in over four years. The Employment Cost Index, which measures changes in wages and benefits, rose 0.7% during the last three months of 2025, marking the slowest quarterly increase since 2021, according to data.
Consumers with lower incomes are facing heightened financial pressures. Affluent households are witnessing a rise in their wealth, driving their spending, whereas lower- and middle-income households are facing heightened financial pressure. Economists have referred to this dynamic as the K-shaped, two-lane, or windchill economy. Lower- and middle-income Americans have increasingly relied on credit cards and other loans in an effort to manage the rising costs of various aspects of life. However, an increasing number of American households are struggling more than ever to manage their inflated credit card debts, to stay current with expensive car payments, to fulfill student loan obligations, and to maintain sufficient funds to meet their monthly mortgage payments. The percentage of auto loan and credit card balances that were seriously delinquent (90 days or more late) reached the highest levels in approximately 15 years, as indicated by the latest household debt and credit report from the Federal Reserve Bank of New York. The report, released Tuesday, indicated that newly delinquent mortgages (30 days past due) reached their highest level in a decade. Researchers from the New York Fed observed that the delinquencies are most pronounced in lower-income zip codes.
Conversely, this is not the case for individuals residing in the highest-income zip codes. The latest debt data doesn’t yet raise red flags about overall consumer health; however, it does indicate that some individuals are facing significant challenges, which could ultimately have a detrimental effect on the economy, Justin Begley told. “If the delinquencies and defaults that wreak havoc on the individual level start to affect wider swathes of Americans, that can eventually boil up to negatively impact consumer spending,” he said. Consumer spending constitutes two-thirds of economic growth.
