Fabio Gómez-Rodriguez on How the Economy Is Doing and Why

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In this episode of Lehigh University’s College of Business ilLUminate podcast, host Stephanie Veto and Fabio Gómez-Rodriguez look back at consumer spending and the U.S. economy in 2025. 

Gómez-Rodriguez is an assistant professor in economics, and his research focuses on time series, in particular the use of non-stationaries to identify the effects of monetary and fiscal policies on the economy. 

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Below is an edited excerpt from the conversation. Read the complete podcast transcript [PDF]. 

Veto: Everything I've read is that consumer spending is fueling the economy. What is your take on that? 

Gómez-Rodriguez: This is a very interesting thing to think about. Economists like to separate economic growth into two main components. One of them is consumption. The other one is called investment or savings. The way I like to think about it is in your household, every dollar you make, you have the decision to either spend it– buying something you want, or maybe hiring someone to do something. Or, maybe you save it and invest it, and try to get some interest rates on that. What's happening is that mainly the biggest portion of the economic growth has always been about 70% consumption. It's normal that consumption is one of the main drivers of economic growth. Because of this big portion, little changes in consumption would definitely reflect in the economy. And the final answer or the short answer to your question is yes, consumer spending has been the main driver of economic growth in the last couple of quarters. 

Veto: I think the maybe an interesting thing about that is that this is happening even with inflation. Can you describe what inflation is and why it's been such a huge topic in 2025? 

Gómez-Rodriguez: That's actually one of my favorite questions to answer. The way I like to answer is the way economists like to keep thinking about two forces interacting, like supply and demand. Well, the way I like to explain what inflation is is very similar. Think about inflation being the counterpart to interest rates. What are interest rates? That's very easy to explain as what motivates you to save, to keep your money and spend it later. Well, inflation is the counterpart to that, as in it motivates you to spend your money because inflation is the way or the speed at which your dollar is losing value. 

If it loses value too quickly, you want to spend it rather faster, right? So, inflation is a motivator to spend money while interest rate is a motivator to keep your money, save it, try to invest it and make more money out of it. Now, these two things are very important. And one of the reasons we have been talking about inflation in 2025 so much is because we are at a very critical point at which we are still suffering from a surge in inflation that we had a couple of years ago. 

The question is, are we done fighting this at the same time that our economy is wanting to grow? And, a way in which you grow an economy is by lowering interest rates. Mainly the Fed has to understand where that good point is between fighting inflation and incentivizing the economy. Because we are at such a critical point, it has become a very important topic to talk about in economics and especially the last year. 

Veto: Economic growth appeared resilient during the holiday season, even as some surveys suggest, a rise in consumer concern. And so how do economists assess these mixed signals when projecting future consumer spending? 

Gómez-Rodriguez: There are a lot of things to think about. The economy has been resilient. You keep thinking things are more expensive, and you don't like it when you have to pay more for eggs or for bread or for getting a haircut. But one of the important prices that you kind of like going up is wages. And, that's part of the inflation as well because it's what businesses have to pay for labor. So, if you think about it, one of the good things about inflation being up or one of the good things about prices in general going up is that, technically, wages also have to go up because it's all a system. It's all trying to find an equilibrium. 

Since wages are also a price, they will also come up with inflation. And what I think is the main thing here is that wages also catch up with inflation. Our ability to buy has remained relatively untouched. For example, that’s why during the holidays, we're able to spend a little bit more on one extra costume or one extra, I don't know, ghost for Halloween, or maybe a bigger turkey in November, or, who knows, another type of cell phone for December in Christmas. So, what I'm trying to say is that wages also have been increasing, and we're being able to spend normally. That's obviously a good sign. The question is, is this sustainable? 

There are other things that seem to be what usually is an alarm for the economy. For example, the number of jobs. If you don't create jobs at the same speed as you've been creating before, then you start thinking, is there something? Even if people are not necessarily losing their jobs, if they're not hiring as much, that's a sign. 

There are a lot of mixed signals that should at least tell us to pay attention to what's going on. One of the things that I forgot to mention in the first question about consumer spending driving the economy is that we do see consumer spending increasing well or growing well. It seems like it's a little bit more heavy on the service part. If we think about the things that we want versus the things that we need, the things that we need are mostly goods. We still need to go to the doctor. And health, of course, is one of the most important services, but also food, which is a good. So, if you think about it as services are growing, it tells you about who is spending more. 

This analysis cannot be done completely without thinking about if this is the same for people that have less or lower income versus higher income. This heterogeneity is definitely something that we have to think about. If people or households with more income are the ones driving the economy, that obviously should be a sign of concern because we also care about lower income families who are struggling. As you can see, that's why it's a very difficult question to answer. 

What do economists look at when they're analyzing the situation? So many things. You try to make a story out of it and try to make it easy to explain, but it's definitely very difficult.