Spending Continues, but the Foundation Is Shifting
At first glance, U.S. consumer spending in early 2026 appears resilient. Retail sales remain positive, travel demand has not collapsed, and service-sector activity continues to support growth. Yet beneath these headline figures, the structure of consumer behavior is changing in ways that raise concern.
Rather than spending driven by rising confidence and income growth, much of today’s consumption is increasingly financed by borrowing. Credit cards, buy-now-pay-later services, and auto loans are filling the gap between stagnant purchasing power and the rising cost of living.
Credit Cards and BNPL Carry the Load
Household reliance on revolving credit has climbed steadily over the past year. Credit card balances are rising even as interest rates remain elevated, pushing borrowing costs to multi-decade highs. At the same time, buy-now-pay-later platforms have expanded beyond discretionary purchases into everyday essentials.
This shift suggests consumers are smoothing expenses rather than expanding consumption. Spending is being maintained, but not comfortably. The difference matters, because credit-driven demand is more fragile than income-backed demand.
Wages Lag Behind Cost Pressures
While nominal wages have continued to rise, they have struggled to keep pace with persistent cost pressures. Housing, insurance, healthcare, and utilities remain major burdens on household budgets. For many middle- and lower-income consumers, wage growth has stabilized living standards rather than improved them.
This dynamic leaves little room for savings. Emergency buffers built during earlier stimulus periods have largely been depleted, increasing vulnerability to shocks such as job loss, medical expenses, or higher borrowing costs.
Auto Loans and Delinquencies Send Warning Signals
The strain is particularly visible in the auto market. Loan terms have lengthened, monthly payments have increased, and delinquency rates—especially among subprime borrowers—are rising. Vehicles remain essential for many households, but affordability has deteriorated.
Unlike discretionary spending cuts, stress in auto credit often signals broader financial strain. When consumers struggle to service transportation debt, it reflects deeper budget pressure rather than shifting preferences.
Why Spending Hasn’t Collapsed
Despite these pressures, consumer spending has not fallen sharply. Several factors explain this resilience. Employment remains relatively strong, giving households confidence that income will continue. Additionally, services such as travel, dining, and entertainment retain priority in household budgets after years of disruption.
However, this resilience masks trade-offs. Consumers are reallocating spending, cutting back on savings, and leaning on credit to preserve lifestyles rather than expanding economic activity.
Policy Blind Spots in Consumer Data
Aggregate data often obscures these dynamics. Headline consumption figures do not distinguish between spending fueled by income versus borrowing. As a result, financial stress can build quietly before appearing in traditional indicators such as unemployment or bankruptcies.
Policymakers monitoring inflation and growth may underestimate the fragility embedded in credit-heavy consumption. By the time stress becomes visible in employment data, adjustment can be abrupt rather than gradual.
Implications for Economic Momentum in 2026
A consumer economy supported by credit rather than confidence is vulnerable to tightening financial conditions. Any shock—whether higher interest rates, slower job growth, or reduced access to credit—could force households to retrench quickly.
This does not guarantee a collapse, but it increases downside risk. Spending driven by borrowing sustains short-term growth while weakening long-term stability. The longer this pattern persists, the more painful eventual adjustment becomes.
A Slow Erosion, Not a Sudden Break
The key risk for the U.S. economy in 2026 is not an immediate consumer pullback, but a slow erosion of financial resilience. As households exhaust credit capacity, spending power could weaken even without a recession trigger.
Consumer behavior suggests caution, not optimism. The economy continues to move forward, but on increasingly borrowed momentum.
