If you have scrolled through social media or watched the evening news over the past couple of years, you have probably heard that economic disaster is always just around the corner. Forecasters have warned about a looming recession, inflation has driven up the cost of everyday goods, and high interest rates have made borrowing money more expensive than it has been in decades.
Yet, despite these headwinds, the United States economy has continued to expand. This is because the primary driver of our country’s economic engine, the consumer, remains resilient.
Everyday shoppers are keeping the entire economic machine running. Even while feeling sour about high prices, households across the nation continue to buy groceries, book plane tickets, purchase electronics, and support local businesses. In this month’s letter, we’ll review why the traditional signals that have historically spelled doom for the consumer no longer appear relevant in today’s economy.
The Engine of the U.S. Economy
To understand why consumer habits matter so much, it helps to understand how the U.S. economy works. Gross Domestic Product (GDP) is the measure economists use to calculate the total value of all goods and services produced in the country.
Historically, consumer spending accounts for roughly 68% to 70% of total U.S. GDP—more than two-thirds of the entire economy. That means government projects, business investments, and international trade make up only a fraction of economic activity compared to the sheer purchasing power of everyday people. Even though there’s plenty of attention getting paid to business spending on artificial intelligence, the consumer’s position at the core of our economy remains completely intact.
When consumers freeze their spending out of fear, the economy stalls. But when shoppers keep swiping their cards, the engine hums along. In recent quarters, consumer spending has continued to outpace expectations, providing the primary fuel preventing the economy from slipping into a downturn.
By the Numbers: Spending, Wages, and Smart Debt
Pessimistic predictions assumed consumers would run out of cash once pandemic-era savings dried up. However, hard data tells a much more encouraging story.
- Retail Spending Keeps Climbing
Retail sales have shown steady, positive year-over-year gains. Rather than pulling back, shoppers have demonstrated steady spending power. Total retail spending has grown at a steady 2% to 4% annual clip, showing that people are still buying essentials while leaving room for discretionary purchases, from restaurant meals to entertainment. - Wage Growth Outpaces Inflation
A big reason people can still spend is that paychecks have been growing. Real wages—meaning earnings adjusted for inflation—flipped back into positive territory. Across the country, annual wage growth has hovered between 3.5% and 4.5%, finally giving workers breathing room as the pace of price hikes cooled down. When workers take home more money in real terms, their purchasing power strengthens. - Healthy Credit Habits: The “Transactor” Boom
Critics often argue that consumers are merely burying themselves in debt to survive. While credit card balances have risen alongside population and price levels, repayment behavior tells a different story.A record share of credit card users are categorized as “transactors” —households that use credit cards for convenience or rewards and pay off their full balance every single month. Industry data reveals that roughly half of all active credit card accounts carry no monthly revolving interest charges. Instead of drowning in unpaid bills, millions of households are managing their debt responsibly.
Lower-Income Households Are Holding the Line
The biggest surprise for many Wall Street analysts has been the endurance of lower-income demographics. These households are traditionally hit hardest by inflation because a larger share of their budget goes toward necessities like food, gas, and rent.However, strong wage growth has actually been most pronounced among entry-level, service, and lower-wage workers. Strong job security, low unemployment, and rising hourly wages have allowed lower-income families to stay afloat and maintain spending stability far better than economists originally feared.
- Household Net Worth Continues to Rise
Much of discretionary spending can be preempted by psychological empowerment. Meaning, if you feel good about your current level of income and wealth, you’re more likely to spend more of your excess income rather than save it. U.S. household net worth continues to reach new all-time highs, powered by a strong stock market and increasing.
The Big Paradox: “Hate Spending”
Despite these solid financial markers, there is a fascinating disconnect between what Americans do with their money and how they feel about the economy.
Consumer sentiment surveys—like the University of Michigan Consumer Sentiment Index—have consistently registered negative or gloomy readings. If people are working, earning more, and paying off debt, why are they so unhappy?
- The Cumulative Cost Shock: Even as inflation slows down, prices do not usually drop back to where they were in 2019. A carton of eggs, a gallon of milk, or a fast-food meal still feels noticeably more expensive than it did a few years ago. People feel that sting every time they check out.
- Borrowing Costs: Mortgage rates and auto loan rates have made buying a home or financing a car significantly more stressful, creating financial anxiety for young families and prospective buyers.
- Negative News Cycles: Doom-and-gloom headlines naturally stick in our minds longer than quiet, steady economic gains.
This split is what economists call a “vibecession”—where the economic vibes are negative, but the hard financial reality remains surprisingly resilient. Said differently, consumers are still paying $12 for a cocktail or $20 for a meal at McDonald’s, but they’re not happy about it. This “hate spending” is the epitome of the current retail environment.
The Takeaway
Actions speak louder than surveys. While Americans might grumble about price tags at the grocery store, they continue to clock in, earn higher wages, manage debt responsibly, and head to the checkout counter.
The U.S. economy has faced turbulent winds, but the resilience of everyday households has proven to be an anchor. As long as American consumers have jobs and expanding paychecks, we anticipate the economy will continue its growth trajectory despite significant headwinds that have historically knocked the consumer off its economic pedestal.
Sources:
https://institute.bankofamerica.com/content/dam/economic-insights/consumer-checkpoint-september-2026.pdf
https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/
https://www.bls.gov/cpi/
