Retail sales and nominal consumer spending are up. Based only on that information, it would seem that consumers are feeling pretty good about the economy. But the skies may not be as sunny as they first appear.
When nominal spending growth is separated into its two components, volume (how much people are buying) and price (what those purchases cost), most of those gains evaporate. In April 2026, higher prices accounted for approximately 0.4 percentage points of the 0.5% rise in consumer spending. Real volume grew just 0.1 percentage points. Baskets are getting more expensive, not fuller.
Meanwhile, the mechanisms that normally sustain spending (rising incomes, a healthy savings buffer, a sense that conditions favor buying) are either flat or softening. April income remained unchanged month over month, meaning the spending increase came from saving less, not earning more. The aggregate personal savings rate is now at its lowest level since June 2022.
The PCEI’s overall Index has held roughly flat over the period shown, easing to 53.6 in June from 54.3 in May, just above the neutral 50 line. The pessimism shows up in the Macro and Buying Climate Subindex, which has stayed below 50 all year. But not everyone feels gloomy about the economy. For those who don’t live paycheck to paycheck, financial resilience remains solid, and the pressure is manageable. However, for those who live paycheck to paycheck and struggle to pay bills, the strain is acute.
These are just some of the findings in “The Inflation Mirage: What Rising Spending Hides About Consumer Demand,” the latest edition of the PYMNTS Consumer Expectations Index (PCEI), a PYMNTS Intelligence exclusive series. This installment is based on a survey of 2,028 U.S. adult consumers conducted June 2–12, 2026. The report examines consumer sentiment across 11 dimensions. Our sample was balanced to match the U.S. adult population by age, gender, education and income. External figures are drawn from the U.S. Bureau of Economic Analysis (BEA) and the U.S. Bureau of Labor Statistics (BLS).
The Inflation Mirage in Consumer Spending
Spending is rising in dollars, but the real volume of what consumers are buying has barely moved.
When analysts report that consumer spending is up, they are typically citing nominal figures, i.e., the total dollars changing hands. But those dollar amounts represent two things: volume (the actual quantity of goods and services purchased) and price (what each of those goods and services now costs). In healthy demand environments, volume drives the number. In the current climate, price is doing most of the work.
BEA Personal Income and Outlays data for January through April 2026 shows the same pattern repeating each month. In April, nominal spending rose 0.5%. Of that increase, approximately 0.4 percentage points reflected higher prices, while real volume accounted for roughly 0.1 percentage points. The pattern is consistent across the four months in the series: most increases in spending stem from higher prices. Households are paying more per unit, not buying meaningfully more.
If consumers are working within fixed budgets, they are not adding more to their shopping baskets. The items that they were already buying just cost more now.
Consumer price inflation reached 4.2% over the year through May 2026, the fastest pace in three years, driven largely by an energy shock. The University of Michigan Consumer Sentiment Index dropped to a record low of 44.8 in May 2026, lower than readings recorded during the early months of the pandemic, the 2008 recession and the oil crisis of the 1970s.
Forecasts based on headline spending figures will overstate demand, particularly in discretionary categories, where volume growth is already low. When analysts cite rising retail sales as evidence of consumer strength without accounting for the impact of inflation on those figures, they risk a significant misreading.
Consumers are taking on more work to afford essentials.
Many Americans are taking on more work to afford those same baskets. Between 19% and 25% of consumers across all financial segments reported engaging in side work or odd jobs, and the reasons vary depending on one’s circumstances. Among consumers living paycheck to paycheck and struggling to pay bills who also do side work, 64% use those earnings to cover basic living expenses, and 42% cite this as their primary reason for doing it. Among consumers not living paycheck to paycheck, those shares are 25% and 7%, respectively. For the latter group, side income goes toward discretionary goals: savings, purchases or developing new skills.
With incomes flat and prices rising, spending is eroding consumer savings.
Spending can increase because people earn more, borrow more or draw down savings. Yet April’s income figures were flat month over month, according to BEA data, which means the April spending increase did not come from a bigger paycheck. It came from saving less. The aggregate personal savings rate has now fallen to its lowest level since June 2022, indicating that the margin between what people earn and what they spend is narrowing.
The PCEI’s subindices show where the softening is concentrated. Since the December 2025 high (December tends to be the most optimistic month, buoyed by holiday sentiment), household financial resilience has declined by 3.1 points in how people feel about their current finances and by 1.9 points in how they view the manageability of their debt. These are measures of capacity, whether households have the safety net to absorb a shock. Both are moving in the wrong direction.
The macroeconomic and buying climate subindex remained below the neutral 50 level all year and is down roughly 5.4 points from its December peak. Consumers evidently feel that now is not a good time to make a significant purchase.
Labor-market security is the only measure generally trending positive. It has risen approximately three points since October 2025 and is largely why the overall PCEI has held roughly flat despite softening on the capacity side. People feel secure about their jobs, and that security has been enough to keep spending from falling.
Still, job security and household financial health are not the same thing. Feeling confident that a paycheck will keep coming is not the same as having savings, manageable debt or room to absorb higher costs.
For financially strained consumers, one emergency expense could be the last straw.
The PCEI asked whether consumers could cover a $1,200 emergency within one week, a standard measure of basic financial resilience. Among those not living paycheck to paycheck, only 3% would not be able to. Among those who live paycheck to paycheck and struggle to pay bills, 43% would not be able to handle the expense.
Those financially strained consumers would also struggle to get by if they missed a month of work. Of this group, 68% have one month or less of savings remaining, and 45% have none at all.
Moreover, they don’t feel they’ll be able to build those savings any time soon. This group’s Index score for confidence in their ability to save going forward is only 38.4 (50 is neutral). The issue is not just their limited savings, but also their weak expectations for the future.
Consumers who are least able to handle financial strain are the most likely to feel it.
Higher prices for food, utilities and other everyday necessities are affecting consumers across the board, but not everyone experiences them as a serious burden. As prices rose in May, consumers across every financial lifestyle took note. Between 84% and 87% of consumers in each group reported paying more for essentials. The intensity with which people experience that inflation, however, is less uniform. Among consumers living paycheck to paycheck and struggling to pay bills, 54% said essential expenses had risen “a lot.” Only 22% of consumers not living paycheck to paycheck said the same.
Among those living paycheck to paycheck without issues paying bills, the strain of rising prices varies month to month. In June, the share saying the price of essentials had risen a lot fell to 31% from 34% the month before, yet that figure remains well above the 24% that said so at the start of the year.
The financial resilience subindex scores show how financially struggling consumers are disproportionately feeling the strain. The overall sample score is positive, at 57.1. But that average conceals a gap of more than 30 points between the top and bottom segments. Consumers not living paycheck to paycheck score 71.5, while those living paycheck to paycheck and struggling to pay their bills score just 38.7.
Consumers do not feel great about the buying climate, either. In June, every group felt negatively, falling below the neutral 50 line. Consumers not living paycheck to paycheck score 48.6. Those living paycheck to paycheck without issues paying bills score 46.1 and those who do struggle to pay their bills score 38.0.
Consumers are changing how they spend to deal with financial strain.
Faced with these conditions, paycheck-to-paycheck consumers struggling to pay bills have been adjusting their discretionary spending. Most (53%) of these consumers report spending less on nonessentials (dining out, entertainment, travel) in the last year, while only 23% say they are spending more. The trend is similar among those living paycheck to paycheck without issues paying bills: 41% are spending less on these services, versus 27% who are spending more. Consumers not living paycheck to paycheck are the exception: 30% report spending more on nonessentials, compared to 27% who are spending less.
The gap between the top and bottom segments is about capacity, and may be partly driven by investment portfolios. Consumers not living paycheck to paycheck are more likely to hold financial assets. When markets perform well, investment gains support a sense of financial comfort that can translate into a willingness to spend on discretionary purchases such as home improvements, major purchases or other nonessential items.
Those living paycheck to paycheck do not benefit from this dynamic. They are paying more for gas and groceries, drawing down whatever savings they have and often working a side job just to cover basic living costs. They do not have the financial freedom to invest, and so they are not catching any of the upside. Additionally, consumers not living paycheck to paycheck have the cushion to treat higher prices as manageable. Those living paycheck to paycheck do not.
Methodology
The PYMNTS Consumer Expectations Index is a monthly, survey-based index of approximately 2,000 U.S. adults per survey wave, weighted to national benchmarks. The index is scored from 0 to 100, where 50 represents a neutral reading and higher scores are more positive.
Eleven core survey questions roll up into three subindices. The personal financial resilience subindex measures household financial capacity, including savings, debt manageability and the ability to absorb an unexpected expense. The macroeconomic and buying climate subindex captures consumers’ assessment of current economic conditions and whether the moment is a good one for significant purchases. The labor-market security subindex reflects consumers’ own perceptions of their job stability, risk of layoffs among peers, and ability to replace income if needed.
The readings reflect consumers’ own assessments and expectations, not measured transaction data. PCEI data in this edition covers October 2025 through June 2026. External figures on consumer spending and prices are drawn from the U.S. Bureau of Economic Analysis Personal Income and Outlays reports and the U.S. Bureau of Labor Statistics Consumer Price Index, covering monthly data through May 2026. BEA data for May 2026 was not available at the time this report was prepared.
