The U.S. doesn’t have a trade problem. It has a demand problem. That’s exactly what we argued as part of this piece: The U.S. Trade Deficit Math In Four Lines. America’s economic heartbeat is slowing – quietly, but measurably. The U.S. economy isn’t running out of supply, capital, or innovation. It is starting to run low on something more basic: consumer demand that drives it all forward.
And the evidence is there – excess savings from the Covid era are nearly gone, credit card delinquencies are at a 12-year high, and businesses are issuing cautious forecasts citing demand fragility. And when this happens, stocks take a hit. But money rotates as demand does, not decline uniformly across industries. We adopt a macro-conscious approach in our High-Quality portfolio, which has outperformed the S&P 500 and achieved returns greater than 91% since inception.
This approach also shapes how we view high-flying stocks like Nvidia – not just through the lens of hype, but in light of actual demand trends. Our full take on why Nvidia may be the next big casualty of weakening demand: Nvidia Stock To Crash More?
Back to consumer demand, let’s dig deeper.
What Is Consumer Demand, Really?
Let’s anchor the conversation in one deceptively simple equation:
GDP = C + I + G + (X – M)
Where C = Consumer spending, about 68% of the U.S. GDP
(I, G, X and M refer to business investment, government spending, exports, and imports)
Consumer demand is “how much people are willing and able to spend.” Not want in theory – but afford in reality. That demand is what tells businesses what to build, where to invest, and how to grow. Without it, everything else – trade policy, corporate earnings, even tax cuts – becomes noise.
Demand is the real driver of growth
When demand is strong, businesses hire, wages rise, and innovation scales. This is how GDP growth translates into real-world prosperity – higher living standards, better healthcare access, and rising household wealth. From 1991 to 2019, real median household income rose > 30%, largely powered by sustained consumption. But when demand weakens, businesses don’t cut prices – they cut plans. And this income is down since 2019.
Policy’s Fingerprints on Demand
Demand responds to policy:
- Monetary policy: Rate hikes slow demand by making borrowing more expensive.
- Fiscal policy: Stimulus checks in 2020–21 drove the sharpest post-crisis rebound in modern history, but contributed to inflation
- Tax and wage policy: Disposable income fuels demand. Squeeze it, and decline in consumption follows.
The Real-Time Signs of a Demand Problem
Here’s what current data tells us about the state of demand in the U.S.
- Excess savings have vanished: Households accumulated ~$2.1T in excess savings post-COVID. As of late 2024, 90%+ of that is depleted, especially among lower-income groups.
- Debt strains are rising: Credit card delinquencies at a 12-year high and consumers are increasingly sensitive to rate changes and inflation shocks.
- Business caution on spending: From Apple to Amazon to Walmart, executives are citing “softening discretionary demand” and “price sensitivity” as key 2025 themes – and that theme only became stronger with recent tariffs
- Wage growth only recently turned real: For nearly 24 months (2021-2023), real wage growth was negative. Only in 2024 did wage growth reach pre-pandemic levels.
Just to be clear, consumers aren’t collapsing – they’re being cautious, stretched, and reactive.
So What?
Forget the trade deficit – the real issue is a creeping demand deficit, one that isn’t catastrophic yet, but may quietly hold back growth. When households hesitate, businesses freeze. When demand softens, investment stalls. And when we ignore the consumer, we misunderstand the engine of our economy.
We don’t need to make America export more. We need to make Americans want – and be able – to buy more. That’s how you grow an economy from the inside out. And what can you do? Insulate yourself from economic swings as best as possible, and ride the upside when it comes. That’s exactly what we do with Trefis High Quality (HQ) Portfolio which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
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