Consumer spending: A window into the U.S. economy

Many factors drive the performance of the U.S. stock market, including the state of the economy, interest rates, and investor sentiment.

Digging deeper, domestic consumer spending has been a critical indicator of U.S. economic health, accounting for about two-thirds of the nation’s $28 trillion gross domestic product (GDP).¹

For investors in Invesco QQQ ETF, which tracks the Nasdaq-100 Index, understanding shifts in consumer spending behavior may offer clues about potential volatility and opportunities ahead. Of course, no one has a crystal ball. Insights on consumer spending, though, can help set expectations for investors seeking to ride the market’s inevitable ups and downs over the long term.

This article explores how consumer spending patterns might signal market trends, drawing on historical insights and key indicators, with a lens on QQQ’s holdings.

Current snapshot: Tariffs and volatility

The U.S. economy is navigating a complex landscape marked by trade tensions, market volatility, and shifting consumer behaviors. Recent data indicates a contraction in real U.S. GDP by 0.3% in the first quarter, signaling potential headwinds for economic growth.² Meanwhile, a measure of consumer confidence in April fell for a fifth straight month to a 13-year low.³ This may reflect growing concerns over inflation and the impact of tariffs on everyday goods.

Financial markets have responded with increased volatility. U.S. stocks experienced a notable downturn in early April following the announcement of widespread tariffs, leading to a significant global market decline. Although a temporary truce in the trade war has provided some relief, uncertainties persist, particularly regarding future tariff implementations and their potential to exacerbate inflationary pressures.

The link between consumer spending and markets

When consumers are confident and open their wallets, businesses often experience revenue growth, potentially leading to stock market gains. Conversely, when households are cautious, they tend to pull back on spending. That often signals an economic slowdown, impacting corporate earnings and investor confidence.

For QQQ, which includes company giants like Apple, Amazon, and Tesla, the personal consumption expenditures dynamic can be a critical indicator of economic health. These companies rely on consumer demand for products, online shopping, and electric vehicles (EVs)—sectors that flourish when spending is robust. 

Historical patterns: Spending and market cycles

Looking back, consumer spending trends have often mirrored market cycles. For instance, during the 2008 financial crisis, a sharp drop in retail sales preceded a steep decline in global market growth.⁴

In contrast, the post-2010 recovery saw spending rebound, and with that, the US economy slowly began to bounce back.⁵

More recently, looking at QQQ’s current holdings, 2020’s pandemic-driven spending shift to e-commerce boosted Amazon, while travel-related weakness hit firms like Booking Holdings.⁶

Standardized performance - Performance quoted is past performance and cannot guarantee of comparable future results; current performance may be higher or lower. Visit invesco.com/performance for the most recent month-end performance. Investment returns and principal value will vary; you may have a gain or loss when you sell shares. Fund performance reflects fee waivers, absent which, performance data quoted would have been lower. Invesco QQQ’s total expense ratio is 0.20%. Index performance does not represent fund performance. 

Key consumer indicators to watch

Several metrics can shed light on consumer behavior’s potential market impact, including:

• Retail sales: This monthly gauge of purchases, released by U.S. Department of Commerce, often signals consumer confidence or caution.
• Personal savings rates: The percentage of disposable personal income that individuals or households save, this metric spiked during the pandemic but has since normalized. Personal savings rates may reflect how much cash consumers might deploy in the future.
• Household debt levels: Now exceeding $18 trillion,⁷ economists keep an eye on this data to see if stretched household balance sheets could constrain spending if interest rates rise, for example.
• Consumer staples versus discretionary spending: The split between discretionary (e.g., iPhones, EVs) and essential (e.g., groceries) spending may provide insight into overall consumer confidence. Generally speaking, discretionary spending has represented a large slice of the consumer-buying pie when households are feeling more confident.

Potential sector impact of spending trends

QQQ’s portfolio isn’t comprised of just technology companies—it includes a mix of other sectors like consumer discretionary, health care, industrials, and telecommunications.

Among sectors, tech has often thrived on discretionary spending, with Apple’s iPhone sales or Nvidia’s graphics processing unit (GPU) demand hinging on consumer appetite. Within tech, communication services companies like Alphabet and Meta depend on advertising revenue tied to consumer activity.

Meanwhile, QQQ holdings like Costco and PepsiCo had to lean more reliant on consumer staples spending.

Finally, QQQ holdings such as industrial gas giant Linde and biotechnology company Amgen had been less dependent on consumer spending.

Navigating QQQ with consumer data

For QQQ investors, consumer spending data could serve as a market signal, not a prediction of the future. Monitoring retail sales reports or savings trends might highlight potential risks or opportunities for the months ahead.

While consumer spending levels might not dictate every move, it’s a thread worth tracking for those interested in today’s most innovative companies.