If you’re new to Wall Street, one of the first things you’ll learn is that the American consumer drives the economy. But how do analysts figure out if consumer demand is healthy, or if cracks are starting to show? The answer lies in a mix of data, trends, and a bit of intuition.
Take the recent holiday shopping season. Retailers pulled in nearly $1 trillion in sales, up 4% from the previous year, according to the National Retail Federation. At first glance, this suggests a strong and resilient consumer. But an analyst’s job is to dig deeper. Are consumers buying more, or are they simply paying higher prices due to inflation? Are they splurging, or are they being strategic and waiting for markdowns? Looking at data from big-box stores like Target, which slashed prices on thousands of items after the holidays, it’s clear that many shoppers are being cautious with their money.
Credit card spending is another key piece of the puzzle. The biggest US banks reported that Americans spent $924 billion on credit cards in the final quarter of 2024, up 5% from the previous quarter. This signals robust demand, but rising balances could also indicate financial strain. Analysts pay close attention to delinquency rates—the percentage of credit card holders who fall 90 days or more behind on payments. While still low by historical standards, delinquency rates at Wells Fargo ticked up to 1.6%, raising concerns that some consumers may be stretching themselves too thin.
Inflation-adjusted spending is another critical factor to watch. Retail sales figures aren’t adjusted for inflation, so a 4% rise in spending might not mean consumers are buying more goods—it could simply mean they’re paying more for the same items. Core inflation, which excludes food and energy, dipped slightly to 3.2% in December, but it remains high enough to influence spending decisions.
Beyond the numbers, analysts look at qualitative factors like consumer sentiment. Are shoppers feeling confident about their finances, or are they cutting back in anticipation of tougher times? Insights from executives at major retailers provide valuable context. Target’s chief commercial officer recently noted that consumers are “resourceful” and “intentional,” suggesting that while they’re still spending, they’re being selective.
Even with all this data, interpreting consumer demand isn’t always straightforward. A strong holiday season doesn’t necessarily mean smooth sailing ahead, especially with the Federal Reserve’s next meeting looming. If interest rates stay high, borrowing costs could curb spending in the months to come. Investors are already scaling back their expectations for rate cuts, which could impact consumer behavior going forward.
For a new analyst, the key takeaway is that no single data point tells the whole story. Retail sales, credit card trends, inflation metrics, and delinquency rates all work together to paint a picture of consumer demand. Learning to connect the dots is what separates a good analyst from a great one.