Have you ever noticed how people keep spending money even when they say they’re feeling pretty gloomy about the future? It’s one of those quirks that makes you scratch your head. Lately, the latest economic figures paint exactly that picture—strong growth fueled by shoppers, yet everyone seems down in the dumps about it.
I remember checking the recent GDP numbers and thinking, wow, 4.3% growth is nothing to sneeze at. That’s solid, especially when many were bracing for something tamer. And the big driver? Folks out there buying stuff, with personal spending jumping a healthy 3.5%. On paper, it looks like we’re all living our best lives.
But then you dig a little deeper, and something doesn’t quite add up. Measures of how confident consumers feel are lingering near levels we haven’t seen in years—pretty low, actually. Normally, when people are optimistic, they open their wallets wider. When they’re pessimistic, they tighten the belt. So what’s going on here? Can spending keep roaring ahead while mood stays in the basement?
The Strange Split Between Spending and Sentiment
In my view, this disconnect is one of the more fascinating puzzles in the current economy. Historically, spending and sentiment move hand in hand. When confidence rises, purchases follow. When it falls, so does spending. Yet right now, we’re seeing the opposite—robust outlays alongside persistently weak vibes.
Perhaps the most interesting aspect is how long this can persist. After all, economies don’t run on vibes alone, but sentiment does influence longer-term decisions. Let’s break down the main forces keeping spending elevated despite the gloom.
The Powerful Pull of the Wealth Effect
One of the biggest culprits—or boosters, depending on how you look at it—is the stock market’s remarkable run. We’ve just wrapped up another year where major indexes posted gains exceeding 20%, marking the third straight year of such strong performance. For millions of households with investments, that translates into bigger portfolio values.
It’s classic wealth effect in action. When people see their 401(k) or brokerage account climbing, they feel richer, even if their paycheck hasn’t budged much. That psychological boost often leads to more spending on everything from vacations to home upgrades. I’ve seen it firsthand with friends who suddenly decide it’s time for that new car because “the market’s been good to me.”
Of course, this effect isn’t evenly distributed. Those with significant stock holdings benefit the most, while renters or folks without investments feel less of it. Still, the sheer scale of recent market gains has rippled through enough households to support broader consumption.
Feeling wealthier on paper often translates into real-world spending, even when wages lag behind.
The question lingering in my mind is what happens if markets cool off. Would spending take a hit? It’s something worth watching closely.
Non-Discretionary Expenses Taking a Bigger Bite
Another key piece of the puzzle lies in where the money is actually going. Not all spending is created equal. Some of it is fun, discretionary stuff—dining out, entertainment, gadgets. But a growing chunk is going toward things people simply can’t avoid.
Think housing costs, healthcare premiums, insurance, even travel if it’s for family obligations. These categories have been claiming a larger share of total spending. Healthcare alone now approaches 20% of personal consumption expenditures. That’s huge.
These aren’t the kinds of purchases driven by optimism or excitement. They’re necessities. You pay the rent or mortgage because you have to. You cover medical bills because, well, health doesn’t wait for better sentiment. In many ways, this shift explains why spending holds up even when people report feeling uneasy.
- Housing and utilities continue rising as a proportion of budgets
- Healthcare costs remain stubbornly elevated
- Auto and home insurance premiums have surged in recent years
- Essential travel, like visiting family, doesn’t get cut easily
It’s a bit sobering, isn’t it? Much of the “strong consumption” we’re celebrating isn’t about splurging—it’s about covering basics that have grown more expensive.
Credit Filling the Gap
Let’s talk about borrowing, because it’s playing an outsized role right now. Credit card balances are climbing, buy-now-pay-later plans are popular, and home equity lines of credit have seen renewed interest. All of these allow people to spend beyond their current income.
In the short term, this bridges the gap beautifully. Real personal income has been essentially flat when adjusted for inflation. Yet spending is up. How? By leaning on credit or tapping savings. It’s like using a credit card to keep the lifestyle going when the paycheck doesn’t stretch far enough.
I’ve always thought credit is a double-edged sword. It smooths out rough patches and lets people invest in opportunities. But when it’s used to fund ongoing consumption without income growth to back it up, warning lights start flashing.
Delinquency rates on cards have ticked higher, though they’re still manageable for now. The real test comes if job losses pick up or interest rates stay elevated. Carrying balances at 20%+ rates eats into future spending power pretty quickly.
Dipping Into Savings to Keep Up
Speaking of bridging gaps, savings rates tell a similar story. The personal savings rate recently dipped to around 4.7%—that’s low by historical standards. During the pandemic, it spiked as high as 30% when stimulus flowed and spending options were limited. Now it’s back down, and then some.
When income isn’t growing in real terms but expenses are, people have two main options: borrow or draw down savings. Many are doing both. Excess savings built up during lockdowns have been gradually whittled away, supporting consumption along the way.
It’s understandable. Life doesn’t pause. Kids need clothes, cars need repairs, holidays arrive whether you’re ready or not. But relying on savings for recurring expenses isn’t sustainable indefinitely. At some point, the cushion thins out.
Savings can act as a temporary boost to spending, but once depleted, adjustments become inevitable.
In my experience following markets, these kinds of patterns often precede shifts in behavior. People feel fine until the buffer is gone—then spending pulls back more abruptly.
Inflation’s Lingering Psychological Shadow
Even as inflation cools from its peak, the experience of higher prices leaves marks. Goods and services cost more than they did a few years ago, and that reality weighs on people’s minds. It’s not just the monthly bill—it’s the memory of when things were cheaper.
This sticker shock contributes to weaker sentiment readings. Surveys capture how people feel about their finances relative to expectations or past norms. When prices jump 20% on essentials, even if they later stabilize, the psyche takes time to adjust.
Interestingly, actual spending isn’t hit as hard because many costs are non-negotiable. You still buy groceries, fill the gas tank, pay utilities. But the grumbling is real, and it shows up in confidence indexes.
There’s also a behavioral angle. Some folks accelerate purchases to get ahead of expected future price increases, further supporting near-term spending. It’s a self-reinforcing loop for a while.
Can This Divergence Last Indefinitely?
Pulling all these threads together, the current strength in consumption makes sense when viewed through these lenses. Wealth gains encourage spending at the margins. Must-pay bills keep dollars flowing regardless of mood. Credit and savings provide temporary bridges.
Yet none of these drivers feel permanent. Stock markets don’t rise in straight lines forever. Savings eventually run low. Credit comes with interest costs that compound. Non-discretionary shares can’t keep expanding without crowding out other areas.
Perhaps the biggest wildcard is the labor market. As long as jobs remain plentiful and wage growth holds up nominally, households can manage. But any meaningful slowdown would expose the vulnerabilities built up from leaning on credit and savings.
- Monitor stock market trends for wealth effect changes
- Watch savings rate and credit delinquency metrics
- Track shifts in discretionary vs. non-discretionary spending mix
- Keep an eye on real income growth
- Pay attention to inflation expectations in surveys
I’ve found that these kinds of divergences often resolve eventually. Either sentiment catches up to the spending reality—perhaps as inflation fades further and real incomes improve—or spending adjusts downward to align with confidence.
For now, though, the economy keeps chugging along on the back of consumer wallets. It’s impressive, a bit puzzling, and worth watching closely. Because when the music stops, the adjustment could come quicker than many expect.
What do you think—will spending stay strong through 2026, or are we due for a pullback? The data will tell the tale, but understanding these underlying dynamics helps make sense of the headlines.
In the meantime, whether you’re investing, planning finances, or just trying to navigate daily costs, recognizing these forces at play can inform better decisions. The economy is rarely as simple as the top-line numbers suggest.
There’s always more beneath the surface—and right now, the gap between what people do with their money and how they say they feel is about as wide as it gets.
