The American Consumer Keeps Spending. For How Long?

American consumers kept spending through the summer and into September, extending a streak of retail growth that has propped up the U.S. economy even as inflation, elevated borrowing costs, and record-low consumer sentiment test household budgets. Retail sales rose for a twelfth consecutive month in September, according to the CNBC/NRF Retail Monitor, but economists increasingly describe the resilience as a “false calm” that masks deepening strain among lower-income households.

The tension sits at the center of a confusing economic moment — one in which spending data and consumer psychology point in opposite directions, and in which the outcome could shape November’s midterm elections.

A Paradox of Spending and Sentiment

The numbers on spending remain sturdy. Total retail sales excluding autos and gas reached $560.8 billion in September, up 0.28% month over month and 4.05% year over year, according to the CNBC/NRF Retail Monitor. Core retail sales rose 3.73% year over year, with electronics and appliances leading gains at 8.41%. Sales rose in every major category except furniture and home furnishings.

“Retail sales rose again last month as consumers continued to spend following a solid back-to-school shopping season,” National Retail Federation President and CEO Matthew Shay said in the report. “Households remain budget conscious, concentrating on everyday essentials even as higher gasoline prices continue to absorb a larger share of family budgets.”

Yet the mood of those same consumers has rarely been darker. The University of Michigan’s Consumer Sentiment Index fell to 46.3 in October, down from 48.1 in September, while the gauge of current economic conditions plunged to 44.7 — the lowest reading on record. The Conference Board’s measure of how Americans view the economy sank to its lowest level since 2014.

“Frustration over cost-of-living continues to mount, as consumers across the political spectrum believe that the trajectory of the economy has weakened since the beginning of the year,” said Joanne Hsu, director of the University of Michigan Surveys of Consumers, citing the latest data.

The Affordability Squeeze

The disconnect has a straightforward explanation: higher-income households are spending, while lower-income households are cutting back.

“Stability in aggregate is masking stress in practice,” said Katie Thomas, who leads the Kearney Consumer Institute. “Higher-income consumers are keeping spending levels steady, which makes the data look stable. But lower-income consumers are under mounting pressure, cutting back and optimizing more aggressively than ever. The result is a false calm: resilience that hides real strain.”

Consumers are absorbing years of accumulated cost increases. Grocery prices have climbed 31% since February 2020, while utility costs have surged 41% over roughly the same period, and auto insurance has jumped 55% since the pandemic, according to a Brookings Institution analysis by William A. Galston. Gasoline prices have held above $4 per gallon since midsummer, rising more than $1.50 on average since the conflict with Iran began. The median home price has climbed from $317,000 in early 2020 to $405,000, with the 30-year fixed mortgage rate now sitting at a three-year high of 7.4%.

Those pressures are visible in household balance sheets. The personal saving rate has fallen to roughly 3%, well below the long-term average of about 8%, meaning consumers are drawing down savings to maintain spending, according to Deloitte’s State of the US Consumer report. Household debt is approaching $18.8 trillion, and credit card delinquency has risen to 13.1% — a 16-year high.

The Fed’s Hawkish Turn

The pressure is, in part, policy-driven. The Federal Reserve raised its benchmark rate by a quarter point in September to a range of 3.75% to 4.00% — the first increase since 2023 — under new Chair Kevin Warsh, who has signaled a hawkish commitment to returning inflation to the central bank’s 2% target.

Inflation stood at 3.3% in July and ticked up to 3.4% in August, still above target, according to Deloitte. The Bureau of Labor Statistics will release September CPI data on October 14 — a report NBC News flagged as likely to bring “fresh signs of trouble” for an economy already straining under the weight of higher prices.

Other research underscores the disconnect between headline statistics and lived experience. In the same Brookings analysis, Galston found that although average hourly wages have risen 30.8% since the pandemic, costs for core household budget items have climbed even faster. “Most Americans feel that they are at best running in place,” Galston wrote.

The labor market offers only partial reassurance. Nonfarm payrolls rose 162,000 in August, the largest gain in five months, and unemployment sits at 4.1% — but the market has been described as unstable, a “low-hire, low-fire” environment in which only 25% of consumers say they could find a new job quickly.

A Political Flashpoint

The stakes extend well beyond economic data. Affordability is now the dominant issue heading into the November midterm elections, and President Trump’s approval rating on handling inflation stands at just 34%, according to Brookings. With the war with Iran driving energy prices higher, the window for the administration to reverse the public’s sour mood is narrowing. The national debt has surpassed $40 trillion, and the 10-year Treasury yield risks hitting 6% for the first time since 2000.

Still, the underlying math is unforgiving: median household income of about $85,000 falls well short of the roughly $120,000 needed to afford a median-priced home, and the median age of first-time homebuyers has climbed from about 30 to 40.

What to Watch

The coming weeks will offer several tests of the consumer’s endurance. The October 14 CPI release will show whether inflation is cooling or reaccelerating. The Federal Reserve’s next meeting will signal how far Warsh’s tightening cycle will go. And holiday shopping season data will reveal whether the twelfth straight month of retail growth becomes a thirteenth — or the streak finally breaks.

For now, the American consumer remains a paradox: spending as if times are good, while telling pollsters the economy has rarely felt worse. Whether that resilience is genuine strength or the last gasp of savings and credit will determine not just the shape of the holiday season, but the political weather of November.