US Consumer Report Card—Third Quarter 2025

Blog

Stay up to date on timely topics and market events. Subscribe to our Blog now.

Overall Score: B
Trend: Stable
We assign the US consumer a strong grade of B for the third quarter, with a stable quarterly trend. In Q3, the US consumer showed signs of further cooling in the labor market and softer spending, but stronger net worth, while other metrics remained stable. Consumer sentiment is still hovering near recent lows, reflecting uncertainty about the impact of inflation and tariffs. The ongoing cooling from peak pandemic-era stimulus suggests the economy is gradually returning to its longer-term trend. The current score of B (69%) remains well above the average score of C+ (55%) seen from 2010 to 2019. We expect further deterioration in economic indicators over the next few quarters given the challenging macroeconomic backdrop due to the uncertainty regarding tariffs along with higher inflation putting further pressure on US consumers’ financial health.

US Consumer Report Card—Third Quarter 2025

Employment: B-
Trend: Deteriorating
The unemployment rate increased to 4.4% in September, rising gradually from 4.1% in June. Looking beyond the headline figure, job growth was soft and nonfarm payroll growth remained weak. Private jobs data releases show muted hiring by private employers as well in September. Looking ahead, US employers announced much higher than expected job cuts in October, up 175% from October 2024. We expect the labor market to remain under pressure due to a slowdown in immigration and government hiring, which will likely affect payroll growth.

Consumer Spending: B
Trend: Stable
Real consumer spending for July and August was resilient. September credit card household data indicates that spending growth rose slightly from August, remaining resilient, at a 2% year-over-year (YoY) pace. Lower-income household spending growth remains muted compared to middle- and higher-income groups due to softer wage gains. Tariff inflation has yet to significantly affect consumer spending, but we expect it to materialize in the upcoming quarters as tariffs weigh on purchasing power and slowing job growth likely leads to lower compensation.

Real Income Growth: A
Trend: Stable
Real disposable income growth remained stable, rising 2% YoY in July and August. Income growth for Q3 held in strong for higher-income households at 4%, while slowing down to 1.4% for low-income households. As labor demand continues to slow and inflation accelerates in the upcoming quarters, we expect to see a sharper decline in real income growth. Looking ahead in 2026, tax refunds are expected to be larger than in past years due to tax policy changes in the Big Beautiful Bill Act, benefiting low- and middle-income consumers, providing a temporary boost to consumer real incomes, and consequently purchasing power.

Household Balance Sheets: B+
Trend: Stable
Consumer credit growth rose in Q3 at an annualized rate of 2.7%. Revolving debt grew 2%, continuing to decelerate, while fixed-rate debt increased 2.9%. Household leverage and debt servicing costs remain low by historical standards, even though bifurcation between higher- and lower-income consumers persists. A subset of consumers who took out debt in the past three years shows signs of increased leverage and weaker performance.

Wealth/Net Worth: A
Trend: Stable
The net-worth to disposable income personal income ratio has increased to near its all-time high following strong equity price gains in the second quarter. Net worth rose 6.1% YoY by the end of Q2, with higher-net-worth and higher-income households posting most of the gains. The savings rate ticked up to 4.6% in August, broadly consistent with observed balance-sheet strength. Liquid deposits remain elevated relative to pre-pandemic levels.

Consumer Sentiment: D+
Trend: Stable
The University of Michigan consumer sentiment index declined further in Q3 and remains weakest among lower-income households. The Conference Board consumer sentiment index also fell. Both surveys hover close to year-to-date lows as employment expectations continue to weaken. Consumer sentiment is expected to remain volatile over the next few months.

Credit Performance: B-
Trend: Stable
in Q3, lower-income borrowers led the YoY deterioration in serious delinquencies across consumer products. While prime auto and credit card performance has stabilized, subprime auto and federal student loans deteriorated further.

Credit card delinquencies of 30+ days continued to level off in Q3, as both new and seriously delinquent balances fell further from June. US bankcard originations increased 8.6% YoY in Q3, led by subprime and super-prime consumer credit. Utilization rates remain steady.

Auto loan originations grew 5.2% in Q3 amid tariff threats, but remain 8.4% below pre-pandemic levels. Affordability continues to be challenged as monthly payments are trending higher. 60+ day delinquencies across the credit spectrum trended higher than expected for subprime auto borrowers, while prime consumers show stability in delinquency levels. Private student loans also show stability in performance, a product that caters to the higher-credit consumer.

Delinquencies on federal student loans remain elevated, reaching 14.4%, exceeding pre-Covid levels, and a small number of borrowers have had their wages garnished. We expect delinquencies to keep rising, led by lower-income borrowers. Personal loans show the greatest increase in origination volume, up 26% YoY. Credit performance shows slight deterioration led by the youngest consumers but remains at pre-pandemic levels.

Larger lenders have tightened lending standards across the credit spectrum, which should limit further deterioration. We continue to favor high-quality consumer credit such as prime auto and private student loans, along with sectors related to housing. In addition, we lean toward positions higher up in the capital structure and remain cautious on subprime consumer assets.

Background on Methodology

Our methodology rationale for creating the US Consumer Report Card first involves ranking economic indicators versus a historical dataset, with tracked periodic changes going back to 1990. We then calculate a weighted average score for each month. Assigned weights range from a high of 23% to a low of 10%. Employment, consumer spending and real income growth make up 60%, while the remaining indicators comprise 40%. The consumer score is mapped against letter grades, normalized for historical experience.

© Western Asset Management Company, LLC 2025. The information contained in these materials ("the materials") is intended for the exclusive use of the designated recipient ("the recipient"). This information is proprietary and confidential and may contain commercially sensitive information, and may not be copied, reproduced or republished, in whole or in part, without the prior written consent of Western Asset Management Company ("Western Asset").

Past performance does not predict future returns. These materials should not be deemed to be a prediction or projection of future performance. These materials are intended for investment professionals including professional clients, eligible counterparties, and qualified investors only.

These materials have been produced for illustrative and informational purposes only. These materials contain Western Asset's opinions and beliefs as of the date designated on the materials; these views are subject to change and may not reflect real-time market developments and investment views.

Third party data may be used throughout the materials, and this data is believed to be accurate to the best of Western Asset's knowledge at the time of publication, but cannot be guaranteed. These materials may also contain strategy or product awards or rankings from independent third parties or industry publications which are based on unbiased quantitative and/or qualitative information determined independently by each third party or publication. In some cases, Western Asset may subscribe to these third party's standard industry services or publications. These standard subscriptions and services are available to all asset managers and do not influence rankings or awards in any way.

Investment strategies or products discussed herein may involve a high degree of risk, including the loss of some or all capital. Investments in any products or strategies described in these materials may be volatile, and investors should have the financial ability and willingness to accept such risks.

Unless otherwise noted, investment performance contained in these materials is reflective of a strategy composite. All other strategy data and information included in these materials reflects a representative portfolio which is an account in the composite that Western Asset believes most closely reflects the current portfolio management style of the strategy. Performance is not a consideration in the selection of the representative portfolio. The characteristics of the representative portfolio shown may differ from other accounts in the composite. Information regarding the representative portfolio and the other accounts in the composite are available upon request. Statements in these materials should not be considered investment advice. References, either general or specific, to securities and/or issuers in the materials are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendation to purchase or sell such securities. Employees and/or clients of Western Asset may have a position in the securities or issuers mentioned.

These materials are not intended to provide, and should not be relied on for, accounting, legal, tax, investment or other advice. The recipient should consult its own counsel, accountant, investment, tax, and any other advisers for this advice, including economic risks and merits, related to making an investment with Western Asset. The recipient is responsible for observing the applicable laws and regulations of their country of residence.

Founded in 1971, Western Asset Management Company is a global fixed-income investment manager with offices in Pasadena, New York, London, Singapore, Tokyo, Melbourne, São Paulo, Hong Kong, and Zürich. Western Asset is a wholly owned subsidiary of Franklin Resources, Inc. but operates autonomously. Western Asset is comprised of six legal entities across the globe, each with distinct regional registrations: Western Asset Management Company, LLC, a registered Investment Adviser with the Securities and Exchange Commission; Western Asset Management Company Ltda. is regulated by Comissão de Valores Mobiliários; Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services License 303160; Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services License for fund management and regulated by the Monetary Authority of Singapore; Western Asset Management Company Ltd, a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan; and Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority ("FCA") (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.