Consumer Sentiment Hits Lows — And My Base-Case View of the U.S. Economy Is Playing Out

For months I’ve felt increasingly convinced that the U.S. consumer is weakening, and recent data seems to confirm that sentiment. With consumer confidence indexes now hitting new cycle lows—and in some cases flirting with all-time lows—the cracks I’ve been watching are no longer subtle. They’re becoming structural.

And when the consumer starts to buckle, the broader economy rarely escapes unscathed.

Early Cracks Become Clear Signals

What started as isolated indicators has now grown into a pattern:

• Rising delinquencies across credit cards and auto loans
• A clear shift in retail spending behavior, with discretionary categories softening
• Increasing strain even in newer credit channels like Buy Now, Pay Later (BNPL)

While these signals often appear disconnected on the surface, together they paint a consistent picture:

The average U.S. consumer is financially stretched.

I’ve been watching these trends closely, and unfortunately, what once looked like early warning signs now appears to be the new reality.

Luxury Still Strong — But Not Enough

One of the few segments that continues to outperform is luxury consumption. High-income households remain relatively resilient thanks to accumulated pandemic savings, wealth effects from rising asset prices, and access to cheaper forms of credit.

But here’s the catch:

The luxury consumer cannot carry the entire U.S. economy.

Broad-based consumption—everyday goods, services, recurring spending—is the true engine. When the middle and lower segments pull back, that slowdown ultimately overwhelms whatever strength exists at the top.

The Growing Concern: Hidden Leverage

A major wild card in the current cycle is the BNPL sector. Unlike traditional lending markets, BNPL exposures are:

• Less regulated
• Less transparent
• More broadly diffused
• Heavily tied to private credit markets

We’re now seeing rising late payments in BNPL services, but what’s unclear is how deep the losses eventually run and who is ultimately holding the risk.

Could BNPL become this cycle’s unexpected pressure point?

It’s too early to say—but it certainly bears watching.

Employment Will Be the Next Shoe to Drop

As consumers tighten spending and delinquencies rise, companies eventually react. We’ve already seen:

• Hiring freezes
• Targeted layoffs
• Slower wage growth

And if consumer weakness persists, these trends will only accelerate. The job market has been the last pillar holding up confidence, but even it appears to be losing momentum.

Can AI and Tech CAPEX Carry the Economy Forward?

One of the more fascinating dynamics today is the massive capital expenditure cycle driven by AI. Tech giants are spending tens of billions of dollars annually on infrastructure—data centers, GPUs, networking, software, you name it.

For now, this spending spree has helped offset consumer weakness, helping keep GDP numbers elevated and equity markets buoyant.

But the key questions remain:

• How long will AI-driven CAPEX stay this elevated?
• Can it continue to mask the slowdown in consumer-driven sectors?
• What happens if both weaken at the same time?

My view: AI will be a meaningful long-term driver of innovation and productivity, but no CAPEX cycle can permanently compensate for a weak consumer. Eventually, fundamentals catch up.‌

I hope I’m wrong. But as data keeps rolling in, my base-case view is starting to play out:

The U.S. consumer is weakening materially, and the signals are becoming too broad to ignore.

The next six to twelve months will reveal whether:

• AI and tech spending can keep the economy afloat, or
• We enter a more traditional slowdown driven by consumer strain and employment softening.

One thing is certain:

The “resilient consumer” narrative is fading, and the real economic story of 2025 may be written by how households adjust to growing financial pressure.