Will the US consumer hold up in 2026?

Episode Summary

Executive Summary: The episode argues that U.S. consumers entered 2026 with a clear split: holiday spending, retail sales, and labor-market support remained solid, but confidence, value-seeking behavior, and reliance on credit signal growing strain. Lauren Lieberman emphasizes a K-shaped consumer, with upper-income households carrying spend while lower- and middle-income shoppers trade down, use buy now pay later more often, and face pressure from inflation, tariffs, and policy changes.

Main Topics: Holiday spending vs. weak sentiment (Priority: 5/5): The hosts contrast strong holiday retail/e-commerce performance with persistently depressed consumer confidence surveys, highlighting a disconnect between actual spending and forward-looking expectations. K-shaped consumer and income bifurcation (Priority: 5/5): Discussion centers on how spending is increasingly concentrated among higher-income households, while lower-income consumers show more caution and rely more on discount channels. Buy now, pay later and consumer strain (Priority: 5/5): The conversation flags rapid growth in BNPL use, especially for essentials like groceries, as evidence that households are stretching to manage cash flow and basic needs. Trading down, discount retail, and private-label behavior (Priority: 4/5): Consumers are increasingly shopping value formats, smaller pack sizes, and lower-price channels; discount retailers like Aldi and Walmart are benefiting even as scanner data shows only modest private-label share gains. Macro supports for 2026 consumption (Priority: 4/5): Lower gas prices, modestly better wage growth, and expected Fed rate cuts are presented as tailwinds that could keep consumption resilient despite weak sentiment. Policy and wealth effects (Priority: 4/5): The hosts debate whether tax cuts, tariffs, reduced benefits, and equity wealth gains from AI-related stocks will meaningfully support or pressure consumer spending in 2026.

Key Arguments: Hard spending data remained resilient over the holidays even though confidence surveys stayed near multi-year lows. Soft data matters because it can foreshadow whether households continue buying cautiously in 2026. The consumer is increasingly bifurcated: the top 10% of households now drive a disproportionate share of spending. Buy now, pay later growth into groceries and other essentials suggests financial strain, not just convenience. Discount stores, dollar stores, off-price, and thrift channels outperformed, showing consumers are actively trading down. Even higher-income households are becoming more price conscious, prompting smaller pack sizes and selective price cuts from staple companies. Private-label share is not surging broadly in scanner data, but discount retailers are gaining traffic and influence outside traditional share measures. Labor-market strength, lower gas prices, wage growth above inflation, and expected rate cuts support spending, but are unlikely to erase bifurcation. Tax cuts may help upper-income households, but tariffs and cuts to SNAP, healthcare support, and student loans could offset benefits for many lower-income consumers. AI-linked equity gains could reinforce upper-end consumption, but not enough to fully support the broader consumer base.

Data Points: Conference Board Consumer Confidence Index: 89.1 in December - Near multi-year lows; lowest since January 2021 excluding April 2025. Conference Board Expectations Gauge: 70.7 - Below the 80 recession signal threshold for the 11th straight month. University of Michigan Consumer Sentiment: 52.9 in December - Another weak consumer confidence reading. One-year inflation expectations: 4.2% - University of Michigan survey result. Core retail sales growth: ~4.2% YoY - Across core holiday weeks, excluding autos, gas, and restaurants. E-commerce sales growth: ~8% - Holiday period performance, with electronics and apparel leading. In-store share of holiday volume: ~75% - Physical stores still captured most holiday sales volume. Black Friday/Cyber Monday share of holiday sales: ~9% - Share of total holiday sales in 2025, up from 8% the prior year. Top 10% household share of consumer spend: ~50% - Highest on record since data began in 1989. BNPL U.S. volume: ~$116–117 billion in 2025 - Projected buy now, pay later market size. BNPL used for groceries: 25% of users - Up from 14% a year earlier, indicating use for essentials. Expected BNPL application intent: 56% of Americans - Surveyed in December; up 6 points from November. Discount retailer traffic: Aldi ranked third among U.S. grocery footprints - Foot traffic nearly matched Kroger and Publix and was over 2x Whole Foods. Aldi expansion target: 3,000 stores by 2028 - U.S. expansion plan over the next two years referenced in discussion. Walmart Supercenters count: 3,600 - Current store count used as a comparison point to Aldi's expansion ambitions. Policy tailwind estimate: ~$200 billion - Expected spending tailwind from tax cuts under the One Big Beautiful Bill. 2021 stimulus comparison: ~$400 billion - 2026 tailwind described as less than half of 2021 support. Core CPI: 2.6% - Referenced as evidence inflation is lower than peak levels but still cumulative. Labor market unemployment range: Low-to-mid 4% - Characterized as still supportive of consumption. Fed cuts last year: 3 cuts - Presented as supportive of growth entering 2026. Expected additional Fed cuts: At least 2 - Market pricing and expectations for 2026. Gas prices: Sub-$3 national average in December - Multi-year lows that ease household budgets. Real wage growth: Positive in 2025 - Wage growth outpaced inflation for the first time in the period discussed. Top 20% share of spending: North of 63% - Used to underscore spending concentration at the upper end.

Pivotal Quotes: "confidence is still near multi-year lows" — Lauren Lieberman: Used to contrast weak sentiment with resilient holiday spending. "that's not signs of exuberance, it's that consumers are really stretched" — Lauren Lieberman: Commenting on the rise in buy now, pay later usage for essentials. "the consumer showed up and probably still will just a lot more carefully" — Brad Rogoff: Closing synthesis of the holiday data and 2026 outlook.

Implications: Listeners should expect 2026 consumption to stay resilient but uneven: upper-income households can keep spending, while lower- and middle-income consumers remain cautious, trade down, and rely more on credit. Watch BNPL, discount channels, and policy impacts as early warning signals.