5 indicators that show the US economy is still firing on all cylinders despite slowing GDP

• The US economy is still firing on all cylinders despite slowing GDP growth in the first quarter.
• Carson Group strategist Sonu Varghese highlighted five economic indicators that show the strength.
• "The workhorse of the US economy remains the consumer, and there's really not much sign of a slowdown," Varghese said.

The US economy is firing on all cylinders despite a slowdown in first-quarter GDP growth, according to Carson Group global macro strategist Sonu Varghese.

Varghese highlighted five economic indicators that show continued underlying strength in the US economy, giving him little reason for concern as the labor market continues to power higher.

"The workhorse of the US economy remains the consumer, and there's really not much sign of a slowdown as far as household spending is concerned," Varghese said in a note last week. "In fact, services spending, which makes up 45% of the economy rose at an annualized pace of 4%."

That 4% growth rate is more than double the 1.8% growth trend seen from 2010 through 2019, according to Varghese, and it represents the fastest pace of growth since the third-quarter of 2021. 

"The current strength of consumption is directly related to the strength of American household finances," Varghese said.

These are the five indicators that give Varghese confidence that the US consumer, and therefore the US economy, remains on solid footing.

1. Income growth is outpacing inflation

Despite elevated inflation, wage growth continues to outpace inflation growth, and that's ultimately a boon for consumers.

Disposable incomes grew at an annualized pace of 4.8% in the first-quarter, and employee compensation soared 7.8%. Meanwhile, PCE inflation rose 4.4%.

"That's the simplest explanation for why consumption continues to run strong," Varghese said.

2. Average hourly earnings are also outpacing inflation

It's not only high-income earners that are seeing their wages outpace inflation. The average every-day worker is also seeing their income grow faster than the pace of inflation.

"Inflation-adjusted hourly wages are growing even when you look at the average worker, and separate non-managers from managers," Varghese explained.

That's important because non-managers tend to spend a greater portion of their incomes from wages, so it's important that they see their wage growth outpace inflation. 

3. Consumer balance sheets are strong

A continued rise in the stock market and housing prices means Americans are more wealthy today than they have ever been.

US consumers held a collective $176.7 trillion in assets as of December 31, and their liabilities have not risen as quickly as their assets have.

That means consumers have ample room to spend money and save less, which makes it no surprise that the savings rate of US consumers has steadily declined over the past few years to 4.2% today from 7.4% in 2019.

"This is not surprising considering net worth is higher. Why save more if you're worth more?" Varghese said. 

4. Consumer's have capacity to borrow more

Across all levels of the income spectrum, consumers owe less in debt relative to their income than they have in decades.

The household debt service ratio, which measures debt payments as a percentage of disposable income, stood at 9.8% in the fourth-quarter of 2024. That's significantly below the 13.3% peak hit in 2007 and the historical average of 11.2%, and it suggests that consumers have ample flexibility to borrow more money and consumer if they have to. 

"Across all income groups, liabilities as a percent of assets are well below what we've seen historically. In short, households are significantly less levered than in the past," Varghese said.

5. The jobs market is still resilient

"The labor market is the entire ballgame as far as the consumer is concerned. If the labor market deteriorates, incomes fall, consumption falls, and the economy is in trouble," Varghese said.

And so far, there are no signs of that happening. "We have the opposite now," Varghese highlighted.

The unemployment rate has stayed below 4% for 26 consecutive months, representing the longest streak since the late 1960s. 

Meanwhile, there is still more than one job opening for every unemployed worker, and weekly jobless claims continue to hover near historically low levels. 

"Ultimately, here's what's important to keep in mind: consumption makes up 70% of the US economy, and right now consumption is running strong thanks to strong labor markets, which are pushing incomes higher to above the pace of inflation, and higher net worth, which means households can spend more," Varghese concluded.