Warning signs flash in the U.S. economy…year-end spending 'stalls' and household debt 'red flag'

December retail sales flat m/m at 0%

Real sales may have declined after inflation

Household debt delinquency rate highest in eight years

Outlook: "Growth will remain solid"

Renewed concerns about an economic slowdown are surfacing as U.S. consumer spending, contrary to expectations, came in weak even during the year-end peak season. With signs of cooling in the labor market, the household debt delinquency rate—particularly for mortgages among lower-income borrowers—jumped to its highest level in eight years.

Year-end spending 'stalls'…delinquencies surge

The U.S. Department of Commerce said on the 10th (local time) that retail sales in December came to $735 billion, essentially unchanged from the previous month (0%). As a key gauge of shifts in consumption—the backbone of the U.S. economy—the figure fell short of the Dow Jones-compiled consensus forecast (a 0.4% increase). Sales rose 2.4% from a year earlier, but given December’s consumer inflation rate (2.7%), analysts say real retail sales excluding price gains were likely down.

Earlier, U.S. retail sales in November, which included the Thanksgiving shopping season, rose 0.6% m/m, fueling hopes of a rebound in consumption. But the stronger-than-expected momentum faded faster than anticipated in December, stoking worries that the U.S. economy may struggle to sustain solid growth.

January consumption is also thought to have cooled. A winter storm that swept across most of the country last month disrupted economic activity, including widespread flight cancellations.

Thomas Ryan, an economist at Capital Economics, wrote in an investor note that "with severe weather hitting most parts of the U.S. in January, consumption likely weakened, and consumption growth in the first quarter this year could also continue to slow sharply."

Labor indicators are also showing signs of softening. The U.S. Department of Labor said nonfarm employment in December increased by just 50,000. That is about one-quarter of the increase seen in March. Kevin Hassett, director of the White House National Economic Council (NEC), said in a CNBC interview on the 9th, "Given the unusual situation of slowing population growth while productivity growth is surging, there’s no need to panic even if low job numbers persist."

A red flag is also being raised over household financial health, especially among lower-income groups. According to the Household Debt and Credit Report released by the Federal Reserve Bank of New York, total U.S. household debt stood at $18.8 trillion in the fourth quarter, up $191 billion (1%) from the previous quarter. The average delinquency rate in the fourth quarter was 3.26%, nearly double the level in the fourth quarter of 2024 (1.7%). The New York Fed said, "The deterioration in repayment capacity is concentrated in lower-income areas and in regions where home prices are falling."

"Growth remains solid…Q1 could top 6%"

In markets, forecasts persist that overall economic growth will remain solid despite these indicators. Ryan said it "is not enough to undermine fourth-quarter growth." U.S. Commerce Secretary Howard Lutnick also said, "We believe fourth-quarter GDP growth will exceed 5%, and first-quarter growth this year could even surpass 6%." He attributed the sharp increase in GDP to rising exports.

Federal Reserve officials said it is necessary to monitor conditions rather than pivot policy prematurely, and argued for maintaining a hold on the policy rate. Dallas Fed President Lorie Logan said, "Over the coming months, we will see whether inflation is moving down toward our target and whether the labor market remains stable," adding, "If so, that suggests further rate cuts may not be necessary." Cleveland Fed President Beth Hammack also said, "It is desirable to keep rates at the current level and watch how things develop," adding that "rates could be held steady for a considerable period."

By Lim Da-yeon, allopen@hankyung.com