Why American Consumers Remain Resilient Despite the High Cost of Living

In late 2025 and early 2026, a curious economic story has unfolded in the United States: consumers are feeling squeezed — but their spending is holding strong. Headlines show persistent worries about inflation and affordability, yet key economic indicators point to continued consumer resilience. Here’s how that paradox plays out — and what the data actually says.

1. Consumer spending is still a major driver of the economy

Despite inflation running above the Federal Reserve’s 2% target, consumer spending has remained surprisingly robust. In the third quarter of 2025, U.S. consumer spending — which makes up roughly 70% of GDP — grew at a 3.5% rate, helping drive overall economic growth to 4.4%, the fastest in two years. (AP News)

Even the month-to-month data shows spending increasing. In November, consumer expenditures rose 0.5%, and overall prices ticked up 2.8% year over year, signaling that households are still buying even as costs climb. (AP News)

2. Consumers are worried — but they’re spending anyway

Surveys clearly show economic anxieties:

• Consumer confidence and sentiment indices remain below pre-pandemic norms, reflecting unease about inflation and job prospects. (McKinsey & Company)
• Many Americans expect prices to continue rising, and concerns about affordability remain front of mind. (AP News)
• A 2026 NerdWallet report found 70% of Americans consider themselves financially resilient, signaling a degree of confidence in their ability to weather financial shocks — even if they’re nervous about cost pressures. (NerdWallet)

3. Wage gains and labor market support cushion the blow

One of the biggest buffers protecting consumer spending has been the labor market and income growth. Across the broader economy, real wages have been rising again after a period of stagnation, offering households more purchasing power relative to inflation. (TD Economics)

Moderate wage gains, combined with historically low debt service ratios, mean many households are better positioned to absorb higher prices without pulling back dramatically on spending. (TD Economics)

4. Strategic spending: not all dollars are equal

Consumers aren’t blindly spending — many are shopping smarter. Data shows households shifting priorities:

• More of the budget is devoted to essentials like food, utilities, housing, and healthcare.
• Discretionary spending on high-ticket items grows more slowly, or is traded down to value brands. (NIQ)

This shift isn’t just anecdotal. Research on credit card data reveals that higher-income households are driving much of the spending growth, while lower-income consumers have weaker spending gains, highlighting a growing divide. (Federal Reserve Bank of Boston)

5. Wealth effects and savings act as buffers

Some households still hold pandemic-era savings, and asset price gains (such as stock portfolios and home values) have bolstered perceived financial security — especially among higher earners. These factors help explain why overall spending doesn’t collapse even when prices rise. (Bessemer Trust)

Moreover, while excess savings have diminished since their 2021 peak, they remain a cushion for many families compared with historical norms. (TD Economics)

6. The Spending Puzzle: Feeling Worse, Spending Better

At first glance, it’s a paradox: Americans feel nervous but keep spending. This disconnect comes down to perception versus reality:

• Price increases — many of which occurred rapidly during post-pandemic inflation — have “anchored” consumer worries about cost.
• But current inflation trends have moderated compared with the highs of 2022–2023, and real incomes are rising for broad swaths of workers. (Federal Reserve)
• Household financial confidence — while imperfect — remains sufficient to support ongoing consumption. (NerdWallet)

Resilience Doesn’t Mean “Unaffected”

American consumers are neither oblivious to high living costs nor immune to economic stress. But a mix of factors — steady job income, selective spending, accumulated savings, and wealth buffers — has kept overall consumption more resilient than sentiment surveys might suggest.

The result? A confident yet cautious consumer, one who may gripe about prices but still steps out to spend — especially on essentials, experiences, and value-oriented goods. That’s the resilience of 2025: not carefree prosperity, but adaptation under pressure.