How consumer spending supports U.S. economic growth

Consumer spending powers the U.S. economy and represents about two-thirds of total economic activity.¹ Household purchases generate business revenue, sustain jobs, and encourage companies to invest, connecting everyday buying decisions with economic growth. Spending on essentials such as housing, food, and energy provides a steady base, while travel, dining, and entertainment show how much flexibility households retain after covering basic costs.

How consumer spending drives U.S. economic growth

Income, wealth, and essential expenses shape consumer spending across the economy. Higher-income households account for a large share of demand, while many lower- and middle-income consumers compare prices more closely and prioritize necessities. Total spending continues to grow despite higher borrowing costs, geopolitical uncertainty, and historically weak confidence.

“Steady income growth and a stable labor market are helping consumers keep spending,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group. Low layoffs and rising pay give many households room to purchase goods and services. Slower hiring and higher living costs create headwinds, but current data do not signal a broad pullback.

September retail sales show resilient U.S. consumer spending

U.S. retail and food services sales rose 0.8% in September 2026 from August and 6.3% from a year earlier.² Sales from July through September increased 5.5% from the same period in 2025, and the Census Bureau revised August’s monthly gain to 1.3% from 1.1%. Because these figures include price changes, they measure dollars spent rather than the inflation-adjusted volume of goods and services purchased.

Most major categories posted gains in September, but the results also showed how higher prices influence where households spend. Gasoline station sales rose 6.4%, furniture stores gained 1.3%, and restaurants and bars increased 1.1% from August, while building material and garden equipment dealers declined 0.6%. The mix indicates that households kept spending but became more selective as higher fuel costs absorbed a larger share of household budgets.

Frequent spending indicators add context to retail sales

More frequent indicators can reveal changes in consumer demand before monthly government reports arrive. “Weekly retail sales surveys, point-of-sale data, and restaurant bookings show that consumer activity remains solid,” says Bill Merz, head of capital markets research for U.S. Bank Asset Management Group. Point-of-sale data record purchases when customers pay, while restaurant bookings provide a timely view of demand for services.

These indicators complement rather than replace official retail sales data. Drawing on several measures helps investors distinguish a brief monthly swing from a broader change in household demand. September’s monthly gain and positive annual growth point to resilient consumer spending, although uneven results across categories still call for careful analysis.

Inflation, tariffs, and energy costs strain household purchasing power

Higher costs for energy, food, housing, and insurance can quickly reshape household budgets because consumers have limited ability to avoid these expenses. September’s rise in gasoline prices and ongoing disruption to major energy and shipping routes increased pressure on household and business costs. Tariffs can add another layer of price pressure when companies pass higher import costs to customers rather than absorb them through lower profit margins.

Wage gains, savings, and stable employment have helped households manage higher costs, but those resources vary widely by income. Higher-income households generally have more savings and discretionary income, while lower-income households devote a larger share of each paycheck to necessities. Overall spending can therefore rise even as many families face tighter budgets and make more deliberate purchase decisions.

Consumers have adjusted to higher essential costs by seeking value, switching brands, or delaying purchases rather than broadly reducing spending. A sustained period in which prices rise faster than pay would pose a greater risk to demand, particularly for households with limited savings or debt carrying interest rates that can reset higher. Investors should compare spending on necessities with optional purchases to understand where pressure is building.

October consumer sentiment weakens despite resilient spending

The University of Michigan’s preliminary Consumer Sentiment Index fell to 46.3 in October from 48.1 in September and stood 13.6% below its October 2025 level.³ Views of current economic conditions dropped sharply, while expectations improved slightly from September. Consumers continued to cite high prices, borrowing costs, and personal financial pressure even as retail sales remained firm.

Year-ahead inflation expectations rose to 4.7% in October from 4.6% in September, while long-run expectations increased to 3.5% from 3.4%.³ Both measures reached their highest levels since May, reinforcing concern about the cost of living. Expectations for higher inflation can prompt some consumers to buy sooner, but they can also weaken confidence and future spending plans.

Sentiment surveys and spending reports answer different questions about the consumer outlook. Surveys capture how people assess prices, jobs, and future conditions, while retail and transaction data show what households actually buy. October’s preliminary reading describes cautious consumers who continued to spend, so investors should track confidence and behavior together rather than treat either measure as a complete signal.

Household debt remains manageable but financial pressure varies

Total U.S. household debt edged down $13 billion, or 0.1%, to $18.8 trillion in the second quarter of 2026.⁴ Mortgage balances declined to $13.1 trillion, while home equity line balances rose to $459 billion. The small decrease indicates households did not broadly accelerate borrowing, making monthly payment burdens a more useful gauge of pressure on consumer spending.

Aggregate delinquency rates improved slightly, although 4.7% of outstanding debt remained in some stage of delinquency.⁴ Higher interest rates raise monthly costs for people who carry credit card balances or use loans with variable rates. Stable income helps offset those costs, but households with limited savings have less room to absorb an unexpected expense.

“Households are better positioned to maintain healthy balance sheets when income grows faster than inflation,” says Tom Hainlin, national investment strategist with U.S. Bank Asset Management Group. Wage growth remains positive, although lower-income households devote more of their budgets to necessities and often encounter price increases sooner. Income growth and manageable monthly payments can preserve financial flexibility even when borrowing costs stay high.

Labor market stability supports consumer spending

The labor market still supports consumer spending, but September data showed a slower and less consistent pace of hiring. Employers added 29,000 jobs, the unemployment rate edged up to 4.2%, and the report revised August payroll growth down to 133,000.⁵ Job growth has cooled, but employment income continues to provide the foundation for household demand.

Weekly unemployment claims still point to limited layoffs. Initial claims totaled 199,000 in the week ended October 10, remaining near historically low levels.⁵ Low claims help preserve household income and spending, although a sustained increase would signal weaker labor market conditions.

Average hourly earnings rose 3.0% over the 12 months through September, extending household income growth even as the pace slowed.⁵ The combination of modest wage gains, limited layoffs, and a 4.2% unemployment rate helps explain why spending has held up despite softer hiring. Larger federal income tax refunds have also added to household cash flow, although that boost may fade as recipients spend or save the proceeds.

Federal Reserve interest rate policy will shape the next stage of the consumer cycle. Higher policy rates can lift monthly payments on mortgages, auto loans, credit cards, and other debt, prompting households to become more selective. Steady income growth and low layoffs remain favorable, but investors should track claims, wages, inflation, and spending together as conditions change.

What resilient consumer spending means for investors

Financial markets are weighing resilient consumer spending against slower wage growth, weak sentiment, and high borrowing costs. Stable household demand can sustain corporate revenue and extend the economic expansion, although consumer-oriented companies may not move in step with the broader equity market. Results will differ based on customer income, a company’s ability to raise prices without losing sales, and its exposure to optional purchases.

Consumer behavior connects employment, inflation, and business earnings. Strong September retail sales, limited layoffs, and continued wage gains point to a constructive economic outlook, while weak sentiment and uneven debt pressure argue for selectivity. Companies with durable demand, sound balance sheets, and clear value propositions may be better positioned than businesses that depend heavily on discretionary purchases.

For long-term investors, the consumer outlook supports a constructive, disciplined approach. Spending remains resilient, but results vary across sectors, income groups, and companies as inflation and borrowing costs shape household choices. Terry Sandven, chief equity strategist for U.S. Bank Asset Management Group, says, “Durable consumer spending remains an important source of strength for the broader economy.”

Investors can use these signals to assess whether portfolio risk still matches their goals. A wealth planning professional can connect current economic conditions with an investor’s time horizon, income needs, and tolerance for market swings. Investors should keep portfolios aligned with both near-term conditions and long-term financial goals.

FAQs

Why is consumer spending important to U.S. economic growth?

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.

What do current retail sales trends say about consumer demand?

Retail sales trends suggest consumer demand remains resilient overall. The Census Bureau reported that retail and food services sales rose 0.8% in September and 6.3% from a year earlier.² The agency also revised August’s monthly gain to 1.3% from 1.1%, while September results showed continued spending despite uneven performance across retail categories.

Is rising household debt a risk to consumer spending?

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 declined 0.1% in the second quarter of 2026, with credit card balances increasing alongside other categories.⁴ 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.