Fed Data Shows the Consumer Holding up Until the Next $2,000 Emergency

• Spending growth is concentrated in necessities: food expectations reached a series high at 5.4%, medical care at 5.3%, and housing at 4.1%, while discretionary spending on transportation and recreation declined
• Income inequality drives behavior: 77% of households earning $100,000+ reported large purchases versus sharply lower rates for those earning under $50,000, with confidence in covering emergencies jumping to 80% for non-paycheck-to-paycheck households but falling to just 15% for struggling households
• Expected future spending growth moderated to 3.4% over the next 12 months, and despite 52% of consumers expecting to save more in 2026, only 24% actually increased savings in the prior six months

Summary

The Federal Reserve Bank of New York's latest Survey of Consumer Expectations, released January 20, 2026, reveals consumer spending remains resilient but increasingly divided along income lines.

Key Figures:

• Households reported a median 4.9% year-over-year increase in nominal monthly spending in December, up from 4.1% in August
• Expected 12-month spending growth rose to 3.4%, up from 3.0% in August
• Only 48% of consumers are confident they could cover a $2,000 emergency within 30 days
• Just 15% of paycheck-to-paycheck households can handle emergency expenses, versus 80% of financially stable households

Spending Patterns:

Consumers are prioritizing necessities over discretionary purchases. Essential category growth expectations reached series highs: food (5.4%), medical care (5.3%), and housing (4.1%). Meanwhile, spending on transportation, recreation, and large-scale purchases showed moderation.

Income Divide:

Lower-income households (under $50,000 annually) showed declining purchasing activity, while 77% of households earning over $100,000 maintained strong spending on large purchases. This bifurcation indicates higher-income consumers continue driving discretionary spending, while lower-income segments focus on essentials.

Market Implications:

Despite headline resilience, underlying consumer financial fragility poses risks. Half of consumers report over $2,500 in liquid savings, yet confidence in emergency preparedness remains low. While 52% expect to save more in 2026, only 24% actually increased savings recently, suggesting a gap between optimism and reality.

Consumer spending should stabilize the economy in 2026, but vulnerability to economic shocks remains elevated among lower-income households, creating an uneven foundation for sustained growth.