Credit Sesame discusses the pandemic effect and the ripples still affecting the U.S. economy.
Since early 2020 and for the next few years, life was dominated by the pandemic and its after-effects. In 2024, life seemed to be back to normal. The pandemic also had a huge impact on the U.S. economy. The effects have mostly faded, but that does not mean the economy is completely healthy.
What was the pandemic effect?
The pandemic effect had three prominent characteristics.
- Manic growth. Shutdowns followed by a reopening with government stimulus led to drastic swings in economic activity.
- Compulsive spending. After being unable to spend as much during pandemic lockdowns, consumers made up for it with a vengeance when the economy reopened.
- High inflation. Supply chain interruptions, pent-up demand, and government stimulus caused high inflation to sweep through most of the world’s developed economies.
To a large extent, these effects have subsided, but there may be lingering problems ahead.
Consumer appetite for borrowing may be slowing
According to the Federal Reserve Bank of New York Household Debt and Credit Report, credit card debt grew by 15.19% in 2022 and 14.50% in 2023.
As the economy reopened following the pandemic, there was pent-up demand from consumers. Most of them had government stimulus checks to spend. When those checks ran out, many used their credit cards to continue the spending spree.
This perhaps excessive borrowing eased in 2024. Through the first nine months of the year, credit card debt grew by just 3.28%. VantageScore reported that applications for new credit card accounts were down year-over-year through November 2024.
Slowing the pace of borrowing is not the same as paying down debt. Borrowing is still increasing, just more slowly now.
Economic growth has stabilized
The pandemic gave rise to a variety of economic disruptions: fouled supply chains, labor shortages, shutdowns, then re-openings, and inflation. Fiscal stimulus from the federal government and monetary stimulus by the Federal Reserve added to the unusual conditions.
The result was a manic economy with sudden slowdowns followed by bursts of growth. From 2020 through 2022, the average change in the real GDP annual growth rate from quarter to quarter was 12.6%. When the economy fluctuates wildly, it is difficult for businesses or individuals to plan ahead.
Fortunately, that erratic pace has settled down. Since the beginning of 2023, annual GDP growth has stayed within a range of 1.6% to 4.4%. The average quarter-to-quarter variation has been just over 1%.
Inflation threat has evolved, not gone away
Snarled supply chains and aggressive government stimulus pushed inflation to a high of 9.0% in 2022. Fortunately, things have calmed down since then. Year-over-year inflation reached a low of 2.4% through the end of September.
Still, there were hints the threat of inflation hasn’t completely gone away. The inflation rate started to inch up again after September 2024. The prospect of tariffs and immigration crackdowns created concerns about the impact of trade wars and labor shortages on inflation in 2025.
As a reflection of these concerns, the Federal Reserve raised its 2025 inflation and interest rate projections. The Fed now expects inflation to end 2025 at 2.5% instead of the 2.2% previously forecast. As a result, it now expects the Fed funds rate to end 2025 at 3.9% instead of the 3.4% previously forecast.
What can consumers do to mitigate the pandemic effect?
The direct impact of the pandemic on the economy has faded, but new inflation threats have emerged that may prevent interest rates from falling as far or as fast as people had hoped. What can consumers do in 2025 to stay on top of their finances?
- Take a deep dive into your budget. Pandemic stimulus checks and the surge of inflation in 2022 scrambled the normal spending habits of many households. It’s time to reset and create a new budget based on today’s prices and your current income.
- Pay down debt. Consumer debt soared in the immediate aftermath of the pandemic. If this happened to you, it’s time to pay down some of that debt. The more progress you can make, the less you will pay in interest charges.
- Focus on saving. Getting your finances back on track involves more than just paying down debt. For years, American consumers have neglected savings. Resetting your budget should include an ample provision for the future.
- Boost your credit score. If interest rates may not fall as much as previously hoped, one way to drive the rates you pay down is to work on your credit score.
The pandemic caused massive economic swings, compulsive spending, and soaring inflation. By 2024, stability returned, but challenges like continued borrowing, debt accumulation, and persistent inflation linger. In 2025, consumers would be wise to reset budgets, focus on saving, pay down debt, and take steps to improve credit scores to navigate evolving financial pressures and secure economic well-being.
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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice
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