Yardeni Research | Consumers Still Doing What They Do Best

💡US consumer spending has remained resilient despite weak income growth primarily due to the "gen-shaped economy," where Baby Boomers spend down their accumulated wealth, offsetting lackluster income gains from younger generations. This dynamic is supported by Boomers' record $89.6 trillion in net worth and a declining saving rate, which fell to 3.6% in March, the lowest since October 2022. Additionally, transitory factors like government shutdowns and severe winter weather influenced spending slowdowns in Q4-2025 and Q1-2026, with an April rebound indicated by strong retail sales and CEO reports. The structural nature of Baby Boomer spending provides a continuous floor to overall consumption, demonstrating that their life-cycle phase heavily influences economic resilience.

💡Baby Boomers' spending habits significantly influence the US economy by fueling overall consumption growth and depressing the national saving rate. As they increasingly retire, they continue to spend from their substantial nest eggs—currently a record $89.6 trillion in net worth—rather than relying solely on paychecks. This behavior shifts consumption patterns towards services like healthcare, transportation, and recreational activities, which saw increases of 4.8%, 3.5%, and 4.2% respectively in March 2026. Their spending also includes channeling wealth into high-end home remodeling, even as home sales are depressed. This generational dynamic explains the persistent gap between robust consumption growth and anemic income growth, providing a structural floor to spending that is unlikely to reverse abruptly.

💡OBBBA tax refunds have significantly boosted US consumer purchasing power, with total tax refunds increasing 17% year-to-date and the average refund growing 11.3%. Despite rising gasoline prices partially offsetting this windfall, the net difference between incremental refunds and increased gasoline expenditure is approximately $26 billion, indicating that consumers are still net better off. This provides a near-term lift to consumption, contributing to the overall resilience in spending, alongside the structural support from Baby Boomer expenditures and a tightening labor market. The additional cash injects liquidity into the economy, enabling consumers to sustain their spending habits.

💡Recent trends in the US labor market that support a positive consumption outlook include initial jobless claims dropping to their lowest level since 1969, signaling remarkably subdued layoff activity. Continuing jobless claims also reached a two-year trough, suggesting it has become easier for unemployed workers to find new jobs. Additionally, ADP data confirm a meaningful uptick in jobs growth, and INDEED job postings have risen. This tightening labor market, with improving employment conditions, enhances the consumption outlook because consumers tend to spend as long as they are employed, providing a critical tailwind to aggregate demand. Companies are also adapting to AI, which creates new roles and restructures others, further stabilizing the job market.

💡Credit availability currently impacts US consumer spending growth positively, serving as a key tailwind. Credit card balances at commercial banks have risen 4.3% year-over-year through the week ended April 22, a significant increase from approximately -2.0% last year. This surge in credit card use indicates that consumers are actively utilizing available credit to finance their purchases, thereby contributing to the observed growth in overall spending. The accessible credit environment, alongside Baby Boomers' structural spending and OBBBA tax refunds, provides additional support, allowing consumption to remain resilient even with lackluster income growth.

💡The recent decline in the US personal saving rate, which dropped to 3.6% in March—the lowest level since October 2022—is primarily explained by the "gen-shaped economy" and Baby Boomers' spending habits. As retired Baby Boomers chip away at their massive nest eggs and are no longer earning paychecks, they maintain high consumption levels while saving less. This dynamic causes consumption growth to outpace real income growth. Additionally, younger generations grappling with the "Affordability Crisis" also contribute to the lower saving rate, as many engage in "survival spending" and rely on credit or family support to cover basic needs.

💡US consumer spending slowed in Q4-2025 and Q1-2026, decelerating to an annualized rate of 1.9% from 3.5% and then further to 1.6%, primarily due to transitory factors. These included the suspension of government workers’ pay from October 1 through November 12 during a government shutdown and very bad winter weather from December through February. These temporary disruptions were not indicative of a long-term consumer spending retrenchment, with subsequent evidence suggesting an April rebound. The underlying structural drivers of consumption, such as Baby Boomer spending and improving labor market conditions, remained intact despite these short-term headwinds.

💡Evidence suggesting an April rebound in US consumer spending includes strong reports from CEOs and weekly economic data. Hilton Worldwide's CEO noted strengthening demand trends since late 2025, while JetBlue's CEO observed demand trends strengthening as the quarter progressed. Bank of America and JPMorgan Chase CEOs also reported solid consumer spending. Weekly data showed the Redbook Retail Sales Index rose 7.7% year-over-year in the week ended April 20, well above the historical average of 3.6%, excluding gasoline sales. Bank of America’s weekly spending report indicated total card spending per household was up 7.2% year-over-year in the week ended April 25, and the Federal Reserve’s Weekly Economic Index rose to 3.0%, its highest level since April 5.

💡Younger generations face significant challenges amidst the 'Affordability Crisis,' including high housing costs, substantial debt burdens, and income stagnation. A 2026 study found that over 70% of Gen Zs and Millennials resort to "survival spending" tactics, such as using buy-now-pay-later services or borrowing from family, to cover basic needs. CivicScience research indicates a large share of all consumers live paycheck to paycheck, exacerbating the problem. Consequently, one in three US adults aged 18-34 lives in their parents’ homes, reflecting the severe economic pressures and limited financial independence for many young individuals.

💡US consumption is expected to remain resilient for the remainder of 2026, underpinned by several key factors. Baby Boomers provide a structural floor to spending as they draw down their record $89.6 trillion net worth. Labor market conditions are quietly tightening, with jobless claims at multi-year lows and rising job postings, improving the employment outlook. Additionally, OBBBA tax refunds offer a near-term boost to purchasing power, and credit remains accessible, with credit card balances rising 4.3% year-over-year. The corporate sector's healthy earnings picture for S&P 500 companies also suggests sufficient economic health to sustain GDP growth, reinforcing the optimistic outlook despite potential risks like sustained triple-digit oil prices.