LEILA FADEL, HOST:
Now we turn to Michael Brown. He oversees analysis of the U.S. economy for Visa. Good morning, Michael.
MICHAEL BROWN: Good morning.
FADEL: What does spending over the holiday season tell us about spending the rest of the year? I mean, this is a season that a lot of people spend a lot more than they usually do.
BROWN: Absolutely. I mean, if you go back over the last couple of quarters, we've seen the consumer be incredibly resilient despite a lot of economic uncertainty...
FADEL: Yeah.
BROWN: ...Slower job growth. Just look at the November employment report - very soft if you average the last couple of months. But real earnings growth, average hourly earnings growth, up 3.7% on a year-on-year basis. And that helps to weather a little bit of this inflation pressure that we are feeling right now. And I think that's the true storyline. As long as the aggregate income growth holds up, I think we have some nice momentum here.
FADEL: I guess is that why spending is up? Because I hear so much angst from people about rising prices and fear of losing their job or taking a pay cut. I mean, I guess I want to understand better, in that anxiety, why people are still spending and spending more than they were last year.
BROWN: Folks are going to spend what they have, and that income growth piece is holding up. I want to be clear that is not true for everyone. And to your point, if we were to sort deconstruct by income demographic, the bottom 25% of income-earning households, those are roughly about those individuals making less than 40,000 a year. Those individuals have seen slower wage growth than everybody else and they have seen more acute inflation pressures. Think about their personal shopping basket of goods. It's three basic things. It's gas, groceries and your housing costs, and two of those three are trending higher.
FADEL: By the time this airs, Christmas will be over. We'll be into the season of sales, right? Everything discounted. How much do you look at that and factor in when you look at people spending, the motivation of sales?
BROWN: So sales are certainly a motivating factor. And if you look at the categories of spend that were up - electronics, clothing and general merchandise stores - those categories had less inflation pressure. That tells me as an economist that consumers are being very thrifty, very savvy. As a matter of fact, if you look at the most common usage of AI this holiday season, it was for price comparisons. So I think what you have is budget-conscious shoppers. I think that behavior is going to be with us for quite a while longer.
FADEL: We've heard over the past year, like I said, a lot of people really telling us they've been struggling as prices go up. It's been a mixed economic bag, if you will, for 2025. As someone who studies spending trends, as an economist, when you look at 2026, are you optimistic?
BROWN: We are. There's a couple of reasons why we think 2026 will be just a little bit better than this year. First, we do think that tax refunds in the spring are going to be slightly above average. Now, that's not going to impact everyone across all the income demographics equally, but that should help buoy consumer spending in the first quarter. As the year progresses, we're expecting two other factors, softer inflation readings as tariff pressures subside slowly. And the second is we expect the Federal Reserve to continue trimming interest rates. That should help free up some consumer credit and help those consumers spend as well. So we're a little bit more optimistic about the spending picture in '26 than we have seen over the last 12 months.
FADEL: Michael Brown is Visa's principal U.S. economist. Thank you so much, Michael.
BROWN: Thank you.
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