Consumer Spending Rises Despite Inflation, End of Aid

If you’ve felt like your grocery bill has been doing CrossFit while your paycheck is just “walking for wellness,”
you’re not imagining things. Prices have stayed elevated, pandemic-era support programs have faded, and borrowing
costs have been higher. Yetsomehowconsumer spending keeps chugging along.

This isn’t magic and it isn’t denial (well, not entirely). It’s a mix of steady paychecks, shifting priorities,
a big divide between higher- and lower-income households, and a growing reliance on “not now, but later” money.
In other words: the economy’s most important engine, the American consumer, is still runningjust with a few more
warning lights on the dashboard.

The “Wait, How?” Moment

Consumer spending is the heavyweight of the U.S. economy, and when households keep buying, the overall economy can
look surprisingly strongeven if many people feel financially squeezed. The key nuance is that “spending is up”
does not mean “everyone is thriving.” It can mean higher-income households are spending more on travel, dining, and
experiences while many others are cutting back, trading down, or leaning on credit.

Another wrinkle: inflation changes what “more spending” means. If prices rise, the same cart of groceries costs
more even when you buy the same amount. To really understand whether households are consuming more, you need to
look at inflation-adjusted measures. That’s where the story becomes more interesting: in recent periods, real
spending has still shown resilience, especially in services.

What the Data Really Shows

PCE: The big, boring, important number

When economists talk about consumer spending, they often mean Personal Consumption Expenditures (PCE),
the broad measure published by the Bureau of Economic Analysis (BEA). It captures spending on goods and services,
including items purchased on your behalf (like employer-provided health coverage).

Recent BEA readings have shown month-to-month gains in consumer spending even as inflation has remained a concern.
In plain English: households keep opening their wallets, and the economy keeps taking that as a love letter.

Services are winning (again)

The composition of spending matters. Since the post-pandemic reopening, consumers have leaned hard into services:
travel, concerts, restaurants, personal care, and other “life is short” categories. Even when people cool it on big
-ticket goods, service spending can keep the overall number rising.

That doesn’t mean goods are irrelevantfar from it. But the biggest “I’m still spending” signal often comes from
services, where demand is tied to lifestyle, habits, and the desire to make up for lost time.

Three Big Reasons Wallets Stayed Open

1) Paychecks still show up (and that matters more than vibes)

The simplest explanation is often the most powerful: employment and wages have continued to provide many households
with steady cash flow. When people have jobs, they buy things. When they feel secure enough to plan a trip or replace
an appliance, spending stays afloat.

Even if growth slows, a “low firing” environment can help consumption hold up because fewer households experience
the sudden income shock that forces dramatic cutbacks. The consumer doesn’t need to feel euphoric to spend; they just
need to feel stable enough.

2) The “two-tier consumer” is real

One of the clearest themes in recent analyses is that spending strength is not evenly distributed. Higher-income
households have driven a disproportionate share of real spending gains. They also tend to have more buffersassets,
savings, and access to credit on better termsso inflation hurts, but doesn’t always force a lifestyle reset.

Meanwhile, many lower-income households have faced a tighter squeeze: food, housing, insurance, and transportation
costs take up a larger share of their budget. When those essentials rise, “fun money” disappears first. The result is
an economy that can show solid consumer spending while a large chunk of consumers feel like they’re doing financial
gymnastics just to stay in place.

3) People adaptfast

Americans are nothing if not creative when forced to be. When prices rise, consumer behavior doesn’t just “go down.”
It changes shape:

• Trading down: store brands, discount retailers, smaller package sizes, fewer premium add-ons.
• Deal hunting: promotions, loyalty apps, bulk buys when something finally goes on sale.
• Selective splurging: cutting in one area to protect another (“I’ll skip the new phone, but I’m keeping my weekend trip”).

This flexibility can keep total spending higher than you’d expect because households don’t always cut consumption
across the board. They optimize. They substitute. They compromise. And sometimes they just sigh, swipe, and hope
future-them is in a forgiving mood.

When Aid Ends, Spending Doesn’t StopIt Changes

“End of aid” covers a lot of ground. Pandemic-era policies included stimulus checks, expanded unemployment benefits,
extra nutrition support, and temporary expansions of tax credits. As these programs expired, the financial support
that helped many households stabilize budgets and build savings diminished.

You might think spending would drop sharply the moment aid ends. In reality, the response has often been more gradual
and uneven. Households with savings or higher incomes can smooth consumption over time. Households closer to the edge
tend to feel the impact faster and more sharplyespecially for essentials.

SNAP emergency allotments: fewer dollars at the grocery store

The wind-down of temporary nutrition benefits reduced monthly support for many SNAP recipients. Research suggests that
when this support drops, grocery spending tends to fall as households adjust to the new budget reality. That adjustment
can show up as fewer items, cheaper substitutions, or more reliance on food banks and community support.

The macro numbers can still look okay because SNAP households are not the primary drivers of total spending growth.
But at the household level, the impact is immediate and very real: food is not optional, so something else has to give.

The expanded Child Tax Credit: what it funded, and what happens when it’s gone

The temporary expansion of the Child Tax Credit (CTC) in 2021 is a good example of how targeted aid can flow directly
into day-to-day consumption. Research using Consumer Expenditure Survey data indicates that households used a meaningful
portion of the payments for basics like housing and food.

When that kind of support disappears, spending doesn’t vanish in a single dramatic swoopit reallocates. Families may
delay purchases, lean on credit, or increase work hours if possible. In many cases, the result is less breathing room,
not necessarily an instant collapse in total spending.

How Households Are Financing the Gap

Credit cards and “pay later” habits

One reason spending can rise even when budgets feel tighter is that households can temporarily bridge the gap with
credit. That can mean more credit card usage, higher revolving balances, or short-term installment products. Credit can
help smooth spendinguntil the bill arrives with interest.

Higher interest rates change the math. Carrying balances becomes more expensive, which can pressure future spending as
more income gets diverted to debt service. If delinquency rates rise, lenders tighten, and the consumer engine loses fuel.

Saving less: the cushion gets thinner

Another way spending stays up is by saving less. A lower personal saving rate can act like a hidden subsidy to current
consumption. It keeps spending elevated today, but it can reduce resilience tomorrowespecially if a household gets hit
with a job disruption, medical bill, or rent hike.

Think of it like driving on a spare tire: you can keep moving, but you probably shouldn’t plan a cross-country trip.

What Businesses and the Fed Are Seeing on the Ground

Beyond the official data, business anecdotes provide a useful reality check. Many retailers and service providers
report a split consumer:

• Higher-income shoppers continue to spend on travel, experiences, and premium offerings.
• Lower- and middle-income shoppers show more price sensitivity, focus on essentials, and respond strongly to discounts.

In other words, spending is rising, but it’s not universally carefree spending. It’s often “strategic spending,”
“splurge spending,” or “I refuse to cancel my one joy” spending.

The Federal Reserve’s regional snapshots have echoed these themes, describing modest overall consumer spending with
resilience among higher-income consumers and greater caution among those with tighter budgets. This on-the-ground
narrative matters because it explains why the headline numbers and the lived experience can feel like they come from
different planets.

Risks for 2026: The Consumer Can’t Carry Everything Forever

Confidence vs. cash flow

Consumer confidence can fall even as spending remains positive. People can keep buying what they need (and some things
they want) while feeling pessimistic about prices, jobs, or the broader direction of the economy. That disconnect is
not irrationalit’s what happens when you’re paying more for basics and borrowing costs are high.

If the labor market weakens meaningfully, the spending story can change quickly. Confidence is a mood; job loss is a
budget emergency.

Inflation may cool, but “high” can still feel high

Even when inflation slows, price levels don’t reset. Many households anchor on what things used to cost, not on the
rate at which prices are rising now. That’s why consumers can remain frustrated even if inflation readings improve:
the sticker shock is already baked in.

Add potential cost pressuressuch as tariffs or supply disruptionsand businesses may feel constrained in how much they
can absorb versus pass on. If prices stay elevated while savings thin and debt costs climb, future spending growth can
become harder to sustain.

Bottom Line

Consumer spending rising despite inflation and the end of aid isn’t a contradictionit’s a story about uneven strength,
adaptation, and financial smoothing. Higher-income households have helped keep aggregate spending resilient. Many other
households are coping through substitutions, deal-hunting, reduced saving, and sometimes more credit.

The big question for 2026 is whether this resilience is durable. If paychecks remain steady and inflation continues to
cool, spending can hold upeven if it stays selective. But if the labor market cracks or debt burdens bite harder,
consumers may finally do what they’ve been threatening to do for years: hit the brakes.

Experiences From the Checkout Line (and the Couch)

The national numbers are useful, but “consumer spending” is really millions of micro-decisions made in grocery aisles,
on websites at 11:47 p.m., and during the ancient ritual known as “opening the credit card app and immediately regretting it.”
Below are real-world style experiencescomposite scenarios based on commonly reported patternsshowing how spending can
rise even when households feel squeezed.

1) The “Essentials Only” household that still spends more.
A renter in a metro area hasn’t changed what they buy for breakfast: eggs, bread, fruit, coffee. But the total receipt
is higher than it used to be, and rent jumped at renewal. They’re not “living large,” yet their monthly spending is up
because essentials are simply more expensive. They compensate by swapping brands, skipping impulse buys, and cooking at
home more often. The spending total rises, the feeling of prosperity does not.

2) The family that treats experiences as non-negotiable.
A household with kids cut back on goodsfewer gadgets, fewer home upgradesbut they protect one category: experiences.
They’ll drive farther to save on gas, pack snacks instead of buying them, and use points for a hotel night. But they
still take the trip. The logic is emotional and rational at the same time: “We can’t do everything, so we’ll do the
thing we remember.” Aggregate spending stays strong because services spending remains sticky.

3) The post-aid budget reshuffle.
Someone who relied on enhanced support during the pandemicextra food benefits, larger tax credits, or temporary help
notices the change when the monthly budget stops balancing “by default.” They don’t stop spending immediately; they
restructure spending. Groceries shift to cheaper proteins and more store brands. Clothing purchases move to off-season
sales. If a car repair hits, they finance it. Spending persists, but the household feels more fragile because there’s
less cushion for surprises.

4) The “credit card is my budget spreadsheet” era.
Another household uses credit cards not for luxury, but for timing. They charge expenses, then pay them down with the
next paycheckexcept sometimes the paycheck gets eaten by rent, insurance, or a medical co-pay. That’s how balances
creep. The family hasn’t become reckless; they’ve become a little more exposed to interest rates. Spending stays up in
the short term, but the long-term risk rises: higher minimum payments can squeeze future consumption.

5) The higher-income household that keeps the aggregate number afloat.
A professional couple sees higher grocery and insurance bills too, but wage growth, investment gains, and accumulated
savings provide insulation. They continue dining out, traveling, and upgrading subscriptions. They may complain about
pricesbecause everyone complains about pricesbut their spending doesn’t change much. When enough households in this
tier keep spending, the overall data can look robust even while many others are tightening belts.

These experiences explain why “consumer spending is rising” can be true while “people feel financially stressed” is
also true. Spending is not a single emotion; it’s a set of trade-offs. And lately, the trade-offs have been getting
sharper.

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