Paycheck-to-Paycheck Shoppers Outspend Income as Sentiment Drops

Two reports released Friday (Dec. 5) showed a consumer economy that remains active and alert but increasingly pressured.

Data from the Bureau of Economic Analysis and the University of Michigan revealed that income gains are slowing, spending growth is cooling off, and sentiment is stuck at unusually low levels for this time of year.

PCE Data Signals Slowdown in Income and Consumption

The delayed personal consumption expenditures release from the BEA showed that inflation held steady at 0.3% month over month in September, which is a 2.8% increase compared to the same period a year earlier. Real disposable personal incomes, adjusted for inflation, rose 1.9% year over year in September. That growth rate continues to slow from 2.8% in September 2024 and 5.2% in September 2023. Real personal consumption expenditures stepped down to 2.1% growth in September, following four straight months above 2.5% and below the 3.4% pace set a year earlier.

There is a pattern here. Consumption has grown faster than incomes for 17 consecutive months. This represents resilience in household spending but also a structural gap that illuminates how consumers are financing their everyday transactions.

Many households are filling that gap by tapping credit. When incomes slow and costs remain elevated, consumers often turn toward digital borrowing products, installment plans or liquidity tools that help them manage timing gaps.

The PYMNTS Intelligence report “Black Friday on a Budget: How Discipline and Deals Shaped Holiday Shopping in 2025” found that among struggling paycheck-to-paycheck shoppers, use of credit card installments jumped from 49% to 58% across channels on Black Friday.

The PCE data indicated at least some pullback in categories such as clothing and footwear and recreational goods; spending on food and beverages was roughly flat. Discretionary purchases, then, were arguably lower in priority, although a rebound could be in the offing through the end of the month as the holiday shopping season, already underway, moves toward its conclusion.

Consumer Sentiment Rises Slightly but Remains Low

Preliminary December data from the University of Michigan showed that consumer sentiment improved 4.5% over November. The expectations subindex rose 7.8% while current conditions held nearly flat, declining just 0.8%. This signals that while consumers may not feel much better about their present condition, they are slightly more optimistic about what comes next, at least as relayed in the most recent data.

The month’s improvement does not offset the broader slide. Sentiment now sits 28% below the mark of the same month a year ago. No other December in the 48-year history of the series recorded a drop this large relative to the prior year. Sentiment related to personal finances remains nearly 12% below levels from the start of 2025. Labor market expectations improved slightly but remain weak overall.

Young consumers drove much of the improvement in expectations, according to the report. Their short-term outlook strengthened while their view of current conditions remained almost unchanged.

“Consumers see modest improvements from November on a few dimensions, but the overall tenor of views is broadly somber, as consumers continue to cite the burden of high prices,” the University of Michigan said in a statement.

Inflation Expectations Fall Across the Short Term

There is one constructive point in the University of Michigan data. Short-term inflation expectations fell for the fourth straight month to 4.1%, down from 4.5% in November. The five-year inflation outlook held steady at 3.2%.

The two data releases together showed the same consumer story from different angles. Income growth is losing momentum while spending remains strong, leaving consumers to manage widening financial gaps in real time. Sentiment showed minor improvement but is still weaker than last year, suggesting households are cautious even when they keep buying. As a result, the paycheck-to-paycheck consumer is increasingly driving the direction of spending, credit use and liquidity demand heading into 2026.