American consumers are still spending enough to keep the economy growing, but the latest data present a more complicated picture than a simple story of households shrugging off inflation.
Personal consumption expenditures rose 6.1% in the 12 months through August, according to the Bureau of Economic Analysis. After adjusting for inflation, however, real consumer spending increased 2.6%. The gap matters: a substantial share of the increase in dollars spent reflects higher prices rather than Americans simply buying far more goods and services.
In August alone, consumer spending jumped 0.9% while real spending rose 0.6%. Disposable personal income increased 0.3%, but after inflation it was essentially flat. The personal saving rate fell to 4.1%, down from 4.6% in July and well below most pre-pandemic 2019 levels.
That does not mean the consumer is collapsing. It does mean that some of the spending strength is being sustained by thinner savings cushions, accumulated wealth and borrowing rather than rapid growth in inflation-adjusted income.
Growth is real, but so is the inflation component
The broader economy continues to expand. The BEA’s latest estimate shows real gross domestic product grew at a 2.2% annual rate in the second quarter of 2026, revised up from an earlier estimate of 1.5%. Consumer spending, private investment and exports all contributed to growth. Real final sales to private domestic purchasers, a measure that combines consumer spending and private fixed investment, increased at a 4.6% annual rate.
Those are signs of economic resilience. But inflation remains above the Federal Reserve’s long-run 2% goal. The Consumer Price Index rose 3.4% over the 12 months through August, and the BEA’s preferred personal consumption expenditures price index was also up 3.4% from a year earlier.
The distinction is important when interpreting rising sales totals. If households spend more because gasoline, rent, food, medical care or other necessities cost more, the increase supports nominal economic activity but does not necessarily represent an improvement in living standards.
That tension is visible in the latest Federal Reserve Bank of New York survey released Wednesday. Median one-year inflation expectations rose to 3.9% in September, the highest reading since May 2023. At the same time, expected household spending growth climbed to 5.5%, also the highest since May 2023. Respondents nevertheless reported a deterioration in both their current and expected future financial situations.
The labor market is no longer providing the same cushion
Consumer spending has been supported by a relatively low unemployment rate, but recent hiring data are weaker than the spending numbers.
Employers added only 29,000 jobs in September, according to the Bureau of Labor Statistics, while the unemployment rate edged up to 4.2%. July payrolls were revised from a previously reported gain of 21,000 to a loss of 10,000, and August was revised down from 162,000 to 133,000.
Average hourly earnings were up 3.0% from a year earlier in September. That is still wage growth, but it is not clearly outrunning the latest available inflation reading, which showed consumer prices up 3.4% in August from a year earlier.
The labor market therefore remains far from recessionary conditions, but it is also less robust than it was when rapid job creation gave households more room to absorb higher prices.
Debt is elevated, though the picture is not a crisis
Households are also carrying historically large debt balances. New York Fed data show total household debt stood at $18.77 trillion at the end of the second quarter. Credit-card balances reached $1.26 trillion, while auto-loan balances climbed to $1.71 trillion.
Still, the debt data do not support a claim that consumers are broadly in financial distress. Total household debt actually declined by $13 billion in the second quarter, and the New York Fed said transitions into serious delinquency were mostly unchanged. About 4.7% of outstanding household debt was in some stage of delinquency.
The more defensible conclusion is that Americans retain substantial spending power, but some of the buffers supporting that spending are thinner than the headline totals suggest.
Why consumers can feel bad while still spending
Weak consumer sentiment is not necessarily inconsistent with continued consumption. Many household expenses are difficult to postpone, and higher prices themselves can produce higher spending totals. Other households, particularly those with rising wages, retirement income, home equity or stock-market gains, may still have enough financial capacity to travel, dine out or make large purchases even while disapproving of the economy’s direction.
The University of Michigan’s final September consumer sentiment index fell to 48.1, down 12.7% from a year earlier. The Conference Board’s separate Consumer Confidence Index fell to 81.9, with its expectations component dropping to 63.6.
Those surveys measure attitudes rather than actual transactions, and sentiment has become a less reliable guide to near-term spending since the pandemic. But dismissing the pessimism entirely would miss real pressure from inflation, borrowing costs and a cooling labor market.
For now, the American consumer remains a major engine of growth. The question is not whether households are still spending. They clearly are. The more important question is how long that pace can continue if inflation stays elevated, wage growth remains modest, job creation weakens and the saving rate stays near current levels.
Sources: U.S. Bureau of Economic Analysis, Personal Income and Outlays; U.S. Bureau of Economic Analysis, GDP Third Estimate; U.S. Bureau of Labor Statistics, September Employment Situation; U.S. Bureau of Labor Statistics, Consumer Price Index; Federal Reserve Bank of New York, Survey of Consumer Expectations; Federal Reserve Bank of New York, Household Debt and Credit; University of Michigan Surveys of Consumers; The Conference Board Consumer Confidence Survey.