Concerns over rising unemployment and potential job losses are driving U.S. workers to scale back their discretionary spending, according to a March 20 report from Bank of America. As economic uncertainty grows, consumers are shifting their focus toward essential expenses, reducing spending on electronics, dining out, and travel.
The report notes that while the labor market remains stable, early warning signs are emerging. Payment data from Bank of America shows that workers are prioritizing housing, insurance, car payments, and utilities over non-essential purchases. Consumers are also seeking value by buying discounted groceries and benefiting from lower gas prices.
Economic Trends and Consumer Behavior
Spending patterns suggest that lower-income workers are feeling the most pressure. Discretionary spending has declined across all income levels but has dropped the most among lower-income consumers. These households have also experienced slower wage growth over the past two years, increasing financial strain.
Despite these challenges, average post-tax wages and salaries have grown year over year. However, Bank of America reports that savings are declining, though at a slower rate than in 2024. This indicates that many consumers had already tapped into their savings last year to cover necessary expenses.
Unemployment has also risen in the past two years, and survey data suggests that workers expect it to worsen in 2025. While the labor market is still holding, these negative expectations may further dampen consumer confidence, leading to continued reductions in discretionary spending.
Hiring Slowdown and Labor Market Outlook
The labor market has shown signs of weakening, with hiring reaching a five-year low in December 2024, according to a BambooHR report. Hiring, job openings, and turnover have declined across all industries.
Economic and political uncertainty could keep the job market stagnant in the coming months. Lead economists caution that businesses may delay hiring decisions amid policy changes and reversals from the Trump administration, creating an unpredictable employment environment.
HR’s Evolving Role in Workforce Strategy
As hiring concerns persist, HR leaders are taking on a more strategic role in workforce planning. According to an isolved report, 91% of HR professionals say their teams are now seen as key business drivers. However, they anticipate ongoing challenges, including talent shortages, skills gaps, and hiring difficulties in 2025.
With shifting economic conditions and declining consumer confidence, companies may need to rethink hiring strategies and employee retention efforts to navigate the evolving labor market landscape.
