American Consumers Fuel Strongest Quarterly Growth in Two Years

Economic data newly released on Thursday (Jan. 22), help fill in some of the gaps of delayed reporting due to the government shutdown, illustrating the resilience of U.S. households, and bolstering PYMNTS Intelligence findings that consumers are pulling what levers they can in order to manage the mismatch between money in and money out.

At a high level, the U.S. economy remains buoyant. As reflected in the latest GDP data, economic output expanded at a 4.4% annualized rate in the third quarter of 2025, marking one of the strongest quarterly performances of the past two years, according to the Bureau of Economic Analysis’ updated estimate. Consumer spending remained the largest single contributor to growth, with services such as health care, financial services, transportation and retail continuing to absorb household dollars.

Trade and investment also added lift, with exports rebounding and inventories improving, while falling imports provided a mechanical boost to headline GDP. Beneath the surface, real final sales to private domestic purchasers rose 2.9%, signaling that underlying private-sector demand remained intact even as some components cooled.

This composition matters. Growth is not being driven by a surge in incomes or productivity gains alone, but by continued willingness among households to spend across both discretionary and essential categories.

Outlays Outpace Earnings

The income picture is less robust as measured by November data, released separately. Personal income rose 0.3% in November, following a 0.1% gain in October, both below the 0.4% average pace seen earlier in the year, according to BEA data released after shutdown delays.

 

After adjusting for taxes, gains were identical, underscoring the absence of a stronger underlying lift.

Spending, by contrast, continued to climb. Personal consumption expenditures increased 0.5% in both October and November, extending a pattern that has held throughout 2025. Goods spending rose 0.7% in November, led by recreational goods, nondurables and apparel, while services spending increased 0.4%, with health care, housing and financial services among the primary drivers.

On a real, inflation-adjusted basis, personal incomes were only 1% above their November 2024 level, down from growth rates of 1.2% and 1.5% earlier in the fall and well below the 2.8% peak reached in April. Real consumption growth, meanwhile, remained closer to 2.6%, leaving spending consistently ahead of earnings.

Income Growth Loses Momentum

The deceleration in income growth is not confined to monthly volatility. Gross domestic income rose 2.4% in the third quarter, notably slower than GDP itself, while the average of GDP and GDI came in at 3.4%, a reminder that production and paychecks are no longer moving in lockstep.

At the household level, the adjustment has been absorbed through savings. The personal savings rate fell to 3.5% in November, near a multi-year low, reflecting how consumers are funding continued spending without commensurate income gains. This drawdown does not yet signal distress, but it narrows the margin for error if labor markets soften or price pressures re-emerge.

Recent PYMNTS Intelligence reporting has shown that consumers increasingly manage cash flow month by month, prioritizing essentials and smoothing expenses through digital tools, short-term credit and timing strategies rather than pulling back outright. The current income-spending gap aligns with those findings.

Looking ahead, the data suggest moderation rather than retrenchment, particularly in the paycheck-to-paycheck economy. PYMNTS Intelligence data shows that daily living expenses challenge two-thirds of consumers living paycheck to paycheck with difficulty.

“When you drill into the specifics, groceries and household essentials hit 87% of struggling consumers,” in that demographic, PYMNTS CEO Karen Webster noted recently.

As long as employment remains stable and inflation continues to ease, spending is likely to slow gradually rather than reverse sharply. Households appear more inclined to rebalance where and how they spend than to stop spending altogether, favoring services and necessary goods while becoming more selective elsewhere.  The economy is still moving forward, but it is doing so with consumers carrying more of the load.

There’s a re-sequence of spending that may be in the offing, smoothing cash flow across pay cycles, and which leans more heavily on timing strategies that preserve day-to-day liquidity. Essentials continue to clear first, while discretionary purchases are delayed, split across payments such as via BNPL options — as detailed here, where PYMNTS has observed the payment option serves as a complement to credit cards — or redirected toward lower-cost channels.