Consumption Is Real

Real private final consumption expenditure has been averaging at 3.5-4 per cent over the past five years despite the exuberant leveraged spending. And while the contraction in financial savings was seen as a sign of improving household confidence, it ironically accompanied a languid actual consumption, indicating faltering real incomes.

Indeed, the

Globally, during this cycle:

-China has had strong industrial production, but weak consumer spending.

-Europe has been relatively weak both in industrial production and consumer spending.

-The United States has been strong in consumer spending, but relatively weak in industrial production.

Right now, there are two important policy changes that have come out in 2025. The first is DOGE aimed at eliminating waste, fraud and abuse in the government. The second is tariffs aimed at making global trade more fair

Which matters more?

The chart today looks at each in terms of their size relative to the GDP of the US. The scales are different to

This will result in a continued downward pressure on consumption, making it hard for consumption growth in the next decade to outpace consumption growth in the past decade.