The U.S. economy has long relied on the strength of consumer spending, which accounts for approximately two-thirds of economic activity. In 2026, this trend continues as households navigate a complex economic landscape marked by higher costs, geopolitical tensions, and evolving labor market conditions.
While challenges persist, recent data indicates that consumer demand remains resilient. This article explores the factors supporting household spending, the impact of rising costs, and the outlook for the U.S. economy.
Resilient Demand Despite Economic Pressures
Despite slower job growth and elevated household costs, U.S. retail sales in June 2026 showed continued demand. This resilience is evident across various sectors, from retail to dining, suggesting that consumers are adapting their spending habits rather than retreating.
Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group, notes that steady income growth and a supportive labor market continue to benefit consumer spending. While slower job creation and higher costs warrant attention, current data does not indicate a broad household retreat.
Retail Sales Reflect Adaptive Consumer Behavior
Recent retail sales data highlights the adaptability of U.S. consumers. U.S. retail and food services sales rose 6.7% from a year earlier, indicating sustained economic support. Although lower gasoline station receipts tempered the Sales excluding automobiles and gasoline increased by 5.7%, while online and other non-store retailers posted a remarkable 14.2% annual gain.
Consumers are also continuing to invest in experiences, although restaurant sales grew more slowly than goods purchases. Food services and drinking place sales stood 3.8% above their June 2026 level, suggesting that consumers are being more selective and directing their spending toward convenience, value, or compelling experiences.
Small-Business Sales and Restaurant Bookings Paint a Positive Picture
More frequently updated spending measures provide a real-time snapshot of consumer behavior. Bill Merz, head of capital markets research for U.S. Bank Asset Management Group, points out that high-frequency retail sales data, point-of-sale readings, and restaurant bookings suggest that
Fiserv transaction data shows that June sales rose 6.1% from a year earlier, while Johnson Redbook data through July 11, 2026, indicates an 8.2% annual growth at department stores, warehouse clubs, and supercenters. OpenTable reported a 10% year-over-year increase in seated diners month-to-date through July 19. Together, these readings reinforce the view that consumers continue to spend across goods and services.
Challenges on the Horizon: Higher Gas Prices and Consumer Confidence
The conflict in Iran has pushed national gasoline prices up more than one-third since February 27, according to AAA. If these increases persist, households may have fewer dollars available for other goods and services. Higher fuel prices can also add to inflation and influence both consumer behavior and Federal Reserve interest rate decisions.
Elevated tax refunds provided a temporary cushion earlier in the year, but they no longer offer meaningful support. A prolonged period of elevated gasoline prices would test consumer resilience, particularly if employment growth slows further or other essential costs remain high.
Consumer confidence improved from its May low, although households remain concerned about prices. The University of Michigan’s preliminary Consumer Sentiment Index rose to 54.4 in July from 49.5 in June, marking a second consecutive monthly increase and the highest reading since February. However, the index remained below its year-earlier level, indicating ongoing economic uncertainty.
Household Debt and Labor Market Stability
Household debt continues to rise, but growth remains measured. The Federal Reserve Bank of New York reports that total household debt increased by 3.3% in the first quarter of 2026 from a year earlier, bringing outstanding balances to $18.8 trillion. Credit card balances rose more quickly, standing 5.9% higher than a year earlier in the first quarter.
Tom Hainlin, national investment strategist with U.S. Bank Asset Management Group, emphasizes that income growth outpacing inflation is key to maintaining healthy balance sheets. Wages before adjusting for inflation continue to rise faster than the cost of living, although gains have slowed for lower-income households. Household debt payments equal roughly 11.3% of disposable income, well below the 2007 peak of 15.8%, suggesting many households retain financial flexibility.
Labor market conditions continue to support consumer spending, although hiring has slowed. Nonfarm payrolls increased by 57,000 jobs in June, while the unemployment rate changed little at 4.2%. Weekly unemployment claims also point to a relatively stable labor market, with initial jobless claims rising modestly to 244,000 in the week ending July 11.
Wage growth continues to support purchasing power, with average hourly earnings rising 3.5% over the past year. Fed policy will shape the next phase of the consumer cycle, as interest rates influence borrowing costs for mortgages, auto loans, credit cards, and other household debt.
The durability of the consumer remains a key reason the broader economic outlook stays constructive, according to Terry Sandven, chief equity strategist for U.S. Bank Asset Management Group.
