Consumer spending continues to support U.S. economic growth, driven by steady wages, low layoffs and resilient household finances.
Retail sales show steady demand, with year‑over‑year growth led by services and online spending, even as monthly gains moderate.
Household debt remains manageable overall, as income growth and relatively low debt‑payment burdens help offset higher borrowing costs.
Consumer spending remains the backbone of the U.S. economy, accounting for approximately two‑thirds of total economic activity. 1 That scale gives household spending an outsized influence on U.S. economic growth, corporate earnings and investor confidence. As long as consumers continue to engage in the economy, expansion tends to persist, even when other parts of the economic cycle cool.
Recent data suggests consumer spending momentum remains intact, supported by steady income growth and a labor market that continues to add jobs. Higher‑income households still contribute a disproportionate share of total spending, while lower income expense trends remain modest. This ongoing growth explains why overall economic activity has remained resilient despite mixed consumer confidence readings. For investors, that resilience remains one of the most important signals to monitor.
Jobs, wages and asset values continue to anchor household finances. While hiring has slowed from earlier peaks, historically low layoffs and ongoing wage gains have helped sustain purchasing power. “Weekly jobless claims remain low and wages have grown faster than inflation,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group. Even with disruptions tied to government shutdowns, average hourly earnings rose 3.7% in 2025, 2 outpacing 2.7% inflation, 3 and allowing incomes to stay ahead of living costs.
Traditional retail sales data reinforces the picture of a consumer sector that continues to move forward, even if the pace of growth has moderated. According to the U.S. Census Bureau’s Advance Monthly Retail Trade Survey, retail and food services sales for December 2025 were essentially unchanged from November, following a 0.6% gain the prior month. Compared with December 2024, sales increased 2.4%, underscoring continued year‑over‑year growth in consumer demand. 4
Looking beneath the headline, spending patterns continue to rotate rather than retreat. Online retailers posted a 5.3% increase from a year earlier, while food service and drinking establishments rose 4.7%. 4 These gains suggest consumers remain willing to spend on convenience and experiences, even as higher prices encourage more deliberate purchasing decisions. That balance helps explain why total retail sales can hold steady while individual sectors experience uneven performance.
“Consumer spending proxies such as retail sales, credit and debit card swipes, restaurant bookings, and daily tax withholding statistics suggest aggregate consumer behavior remains solid.”
Bill Merz, head of capital markets research for U.S. Bank Asset Management Group
High‑frequency indicators tell a similar story. As Bill Merz, head of capital markets research for U.S. Bank Asset Management Group, notes, “Consumer spending proxies such as retail sales, credit and debit card swipes, restaurant bookings, and daily tax withholding statistics suggest aggregate consumer behavior remains solid.”
Consumer sentiment has been more mixed, even though spending remains steady. The University of Michigan’s Index of Consumer Sentiment dipped near all-time lows in early November before modestly rebounding to start 2026. 5 Political views, tariff concerns and temporary shutdown-related uncertainty contributed to the decline, though sentiment trends appear less indicative of changes in spending growth.
Transportation activity provides an additional, real‑world check on consumer demand. Trucking volumes, courier services and rail shipments remain in line with typical seasonal patterns, signaling that goods continue to move through the economy at a healthy pace. These indicators help validate what retail sales and payment data already suggest – namely, that consumers are still buying, even if enthusiasm has cooled. That steadiness matters because it supports both corporate revenue and broader economic growth during a period of policy and geopolitical uncertainty.
Household debt continues to rise, but the pace has slowed and remains below longer‑term averages. The New York Federal Reserve reports that total household debt increased 4.1% in the fourth quarter of 2025, bringing outstanding balances to $18.8 trillion.6 What matters most for consumer spending is not the total level of debt, but whether debt meaningfully changes household cash flow.
Credit card balances have increased more noticeably, rising in the fourth quarter to stand 5.5% higher than a year earlier.6 That trend can signal pressure for some households, especially as higher interest rates raise borrowing costs. Still, income growth remains an important offset. “A key to consumers maintaining healthy balance sheets is that income growth outpaces inflation,” says Tom Hainlin, national investment strategist with U.S. Bank Asset Management Group. Nominal wages continue to exceed the cost of living, even as gains slow for lower‑income households.
Debt affordability offers additional context. Household debt payments equal roughly 11.3% of disposable income, well below the 2007 peak of 15.8%. 7 That cushion suggests many households still maintain financial flexibility, even as higher‑rate borrowing creates pressure at the margins.
Labor market signals remain mixed but broadly supportive of continued consumer spending. Payrolls increased by 130,000 in January 2026, while unemployment held at 4.3%. Job openings have declined and hiring has become more selective, yet wage growth holding near 3.7% continues to support household spending as the labor market moves toward better balance. 2
Federal Reserve policy also plays a direct role in shaping consumer behavior. Cuts to interest rates in September, October and December have begun to ease borrowing costs, with markets expecting additional reductions later in 2026. 8 Policymakers continue to weigh cooling labor conditions against inflation risks, including those tied to tariffs, as they guide the next phase of the economic cycle.
Market performance has started to reflect these cross‑currents. Equity markets are off to a strong start in early 2026, despite consumer discretionary stocks lagging broader market gains. This stands in contrast to strong consumer discretionary performance in recent years. 6 Higher interest rates and slower job growth have weighed on valuations, even as consumer spending remains intact.
Even so, consumer health remains central to our constructive outlook. Steady spending, low layoffs and constructive income growth continue to support corporate fundamentals. As always, investors should work with their wealth planning professional to ensure portfolios align with both current economic conditions and long‑term financial goals.
Consumer spending matters because it makes up approximately two‑thirds of U.S. economic activity and often drives short‑term economic growth. 1 It includes everyday purchases of goods and services, and government agencies track it closely as a key part of gross domestic product and as an early gauge of economic strength. When consumer spending holds up, it supports business revenue and hiring, which can help the economy keep expanding.
Retail sales trends suggest consumer demand remains steady overall. The Census Bureau’s retail and food services sales data showed a flat month‑to‑month result in December 2025 while still running higher than a year earlier, which points to continued spending even as momentum cools. Taken together, the data suggests households are shifting where they spend rather than stepping away from spending altogether.
Rising household debt can be a risk to consumer spending, but the impact depends on whether payments strain monthly budgets. Recent Federal Reserve Bank of New York data shows household debt rose modestly in late 2025, with credit card balances increasing alongside other categories. 6 Even so, broader measures that compare debt with income have remained relatively low by historical standards, which suggests many households still have capacity before debt becomes a widespread spending constraint.
Growth slowed late last year as the government shutdown weighed on activity, while consumer spending, hiring and income trends remained broadly supportive.
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