October 24, 2025
Year-end review: Tax law changes, investment outlook and your financial plan
6-min read
Share:
Steady consumer spending continues to fuel U.S. economic growth.
High-frequency economic data shows mostly favorable signs.
Consumer sentiment is down but improved in the most recent measures.
Consumer expenditures drive nearly two-thirds of U.S. economic activity, 1 making Americans’ spending essential for continued economic growth. Jobs, incomes and growing asset prices are key ingredients for a healthy consumer. Our metrics show that strong aggregate spending growth continues to support economic and corporate earnings growth. although higher income consumers pace this trend.
Wage growth and minimal layoffs have offset slower hiring in recent months. “Wage growth to this point still outpaces inflation, so the signs remain encouraging,” says Rob Haworth, senior investment strategy director at U.S. Bank Asset Management Group. The latest labor market data shows that U.S. workers’ average hourly earnings grew 3.7% over 12 months ending in August. By comparison, the most recent Consumer Price Index, a primary inflation measure, increased 3.0% over the 12 months ending in September. 2 As a result, consumer incomes continue to outpace rising living costs nationwide.
Significant tariff hikes on goods we import from major trading partners could push costs higher, but so far, these increases remain contained. President Donald Trump has announced and delayed tariff plans on several occasions. The effective tariff rate, based on U.S. Treasury revenue and Census Bureau import data, reached nearly 11% in August. The Yale Budget Lab estimates that announced tariffs could push this rate as high as 16.7%, depending on consumer substitution and tariff negotiation outcomes. 3
Investors rely on indicators that provide real-time economic signals, as these frequently updated measures often lead economic trends. According to Bill Merz, head of capital markets research for U.S. Bank Asset Management Group, “Consumer spending proxies, retail sales, credit and debit card swipes, restaurant bookings and other high frequency consumer data suggest aggregate consumer behavior remains solid.” Merz adds, “Likewise, domestic rail activity, trucking tonnage, and inbound containers to the Port of Los Angeles remain normal.”
Consumer sentiment has stabilized, improving from earlier declines. In May, the University of Michigan’s Index of Consumer Sentiment hit its second-lowest point in history after tariff uncertainty triggered stock price declines. 4 Sentiment has rebounded, though it remains below 2024 levels.
Consumer debt keeps rising, but at a slower pace. Household credit grew 3.3% in the second quarter compared to last year, slightly below the 20-year average. Debt growth also trails consumer spending, indicating that rising incomes drive recent spending growth. Credit card debt stands out, rising 5.9% versus a year earlier. 5
“A key to consumers maintaining generally healthy balance sheets is that income growth outpaces inflation,” says Tom Hainlin, national investment strategist at U.S. Bank Asset Management Group. “Nominal wages are still gaining on the cost of living.”
“A key to consumers maintaining generally healthy balance sheets is that income growth outpaces inflation,” says Tom Hainlin, national investment strategist at U.S. Bank Asset Management Group. “Nominal wages are still gaining on the cost of living.”
Tom Hainlin, National Investment Strategist for U.S. Bank Asset Management Group
Recent Bureau of Labor Statistics revisions show lower job creation than initially reported since March 2024. Non-farm payroll reports reveal slower hiring, with job gains averaging 123,000 per month in early 2025 versus 27,000 in the most recently available four months. However, low initial weekly jobless claims suggest limited firing and the unemployment rate stands at 4.3%, only slightly higher than last year. While companies aren’t laying off workers en masse, they aren’t hiring aggressively either.
The Federal Reserve (Fed) cut interest rates in September and investors anticipate two more cuts by year end and additional cuts next year. In determining future policy, the Fed continues to balance concerns about inflation risks, possibly fueled by higher tariffs, with the potential for future labor market weakness. Interest rate policy impacts consumers, as it influences borrowing costs like mortgages, auto loans and credit card balances.
Consumer discretionary stocks, reflecting resilient consumer spending, performed well recently, posting a 6.3% gain over the past three months. In 2023 and 2024, the S&P 500 consumer discretionary sector delivered 42% and 30% total returns, respectively, signaling consumer economic optimism. In 2025, consumer discretionary stocks are lagging behind faster growing sectors while the broad S&P 500 is up more than 15% year-to-date. 6
Consult with your wealth planning professional to determine how to be position your portfolio, considering current market dynamics and your long-term financial objectives.
Consumer spending drives the economy. In 2025’s second quarter, personal consumption expenditures made up 69.1% of the U.S. Gross Domestic Product (U.S. Bureau of Economic Analysis). This figure shows that consumers play a decisive role in whether the U.S. economy is growing or shrinking.
Consumers continue to take on more debt but rising wages and improved savings help balance the situation. As of June 30, 2025, consumer debt reached $18.4 trillion (Federal Reserve Bank of New York), yet household debt remains manageable. The U.S. Federal Reserve reports that household debt equals about 11% of disposable income, which is still below the 13% peak seen in 2008.
Amid an uncertain economic environment complicated by significant trade policy changes, the U.S. economy contracted modestly in the first quarter.
We can partner with you to design an investment strategy that aligns with your goals and is able to weather all types of market cycles.
U.S. Bureau of Economic Analysis.
U.S. Bureau of Labor Statistics.
Federal Reserve Bank of New York, “Short-Term Inflation Expectation Continue to Tick Up; Labor Market Expectations Deteriorate,” October 7, 2025.
Yale Budget Lab, “State of U.S. Tariffs, October 17, 2025,” State of U.S. Tariffs: October 17, 2025 | The Budget Lab at Yale
University of Michigan, “Surveys of Consumers,” October 2025.
S&P Dow Jones Indices. As of October 21, 2025.
Investment and insurance products and services including annuities are:
Not a deposit • Not FDIC insured • May lose value • Not bank guaranteed • Not insured by any federal government agency.
U.S. Wealth Management – U.S. Bank is a marketing logo for U.S. Bank.
U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.
The information provided represents the opinion of U.S. Bank and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific investment advice and should not be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation.
U.S. Bank does not offer insurance products but may refer you to an affiliated or third party insurance provider.
U.S. Bank is not responsible for and does not guarantee the products, services or performance of U.S. Bancorp Investments, Inc.
Equal Housing Lender. Deposit products are offered by U.S. Bank National Association. Member FDIC. Mortgage, Home Equity and Credit products are offered by U.S. Bank National Association. Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice.
This link takes you to an external website or app, which may have different privacy and security policies than U.S. Bank. We don’t own or control the products, services or content found there.
Opt out of behavioral advertising.
Something went wrong. Please try again later.
Please enter a valid email address.
You have successfully opted out.
We use tracking technologies, such as cookies, to gather information that helps us understand how visitors interact with our website. We also use this information to deliver advertising on our site and other sites. To opt out of these tracking technologies on our site, select the “Opt out” button.
We use your email address to advertise to you on third-party platforms such as search results and social media sites. To opt out of this behavioral advertising, enter your email address in the “Email address” field and then select the “Opt out” button.
We also honor opt-out preference signals, such as the Global Privacy Control, which communicate your opt-out preferences to the websites you visit.
Optional
Please note: You must repeat this opt-out process if you visit our site from a different computer or device, have multiple email addresses or clear cookies on your browser.