The United States economy is navigating a complex landscape of trade tensions, demographic shifts and evolving consumer behavior. In a recent interview with Yahoo Finance, Visa Chief Economist Wayne Best offered unique insights into where the economy stands, drawing from Visa's consumer spending data. Here are the key takeaways from his analysis:
1. Consumers are cautious but still spending on essentials
Despite widespread concerns about economic uncertainty, Visa's spending data tells a nuanced story. The company's proprietary Spending Momentum Index, which tracks both the number of people spending and their spending levels, has remained below 100 for the past couple of years — indicating fewer people are spending compared to historical norms.
However, non-discretionary spending on essentials like gas, groceries and other necessities has recently tipped above 100. This suggests that while consumers are being more selective, they're still meeting their basic needs. Lower gas prices have particularly helped lower-income households, freeing up money for other categories.
"The data's holding up," Best noted, emphasizing that people are still spending, just at a more measured pace than in previous years.
2. Tariff impact has been more limited than expected
One of the most volatile aspects of the current economic environment is trade policy uncertainty.
However, the actual inflation impact from tariffs has been more contained than many feared. Visa's modeling¹ suggests tariffs will add only about 0.2 percentage points to inflation in 2025 (PCE deflator), far less than the direct 1.2 percentage point impact widely expected. The reason? Consumers and businesses have become sophisticated deal shoppers, finding alternative sources and routing goods through different channels to avoid higher prices.
"Consumers and businesses are pretty darn smart," Best observed. "They have tools available to them now that they never had before."
3. The South is a major driver of America's economic growth
Perhaps the most striking trend Best highlighted is the explosive growth in the Southern United States.² Since 2020, the region has seen 5.6 percent population growth — well above other regions — with 84 percent of that growth coming from international migration.
The economic implications are substantial: 78 percent of all jobs created in the U.S. over the past five years have been in the South's 16 states. This isn't just about low-wage work. The region has transformed from 16 percent manufacturing two decades ago to just 8 percent today, with growth concentrated in higher-value professional services.
The migration is driven by practical factors: cheaper housing, lower taxes and expanding job opportunities. This allows Southern consumers to save more money and have greater spending power — a trend that's reshaping the national economic landscape.
4. AI will transform work, but gradually
While some predict AI could eliminate 50 percent of white-collar jobs, Best takes a more measured view. He sees AI's impact being more evolutionary than revolutionary, at least in the near term.
"Business processes are really going to have to shift, and for large businesses, that's very challenging," he explained. The real productivity gains will come from freeing workers from routine tasks, like salespeople spending less time on back-office functions and more time actually selling.
Best expects meaningful AI adoption to take two to three years for most businesses, with many companies likely acquiring AI-savvy firms rather than building capabilities from scratch.
5. Demographics present long-term challenges
Looking ahead, Best identified declining birth rates as a fundamental economic challenge. With 11,6003 Americans turning 65 daily through the end of the decade and fewer children being born, the labor force constraints are real.
The impact is already visible in sectors like education, where schools are closing due to declining enrollment. "Kids are expensive," Best noted, but they're also economic drivers. Without population growth, the U.S. risks following Japan's path toward 1 percent potential GDP growth.
The solution, according to Best, lies in immigration and productivity improvements through technology — though meaningful AI-driven productivity gains are still years away.
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