Consumer Spending Persists Despite Slower Income Gains

• Spending on services jumped 0.7% while goods spending fell 0.1%, marking the first decline in six months as households reallocate budgets toward housing, healthcare, and travel.
• Labor Economy workers (earning $25/hour or less) drive $1.7 trillion in annual spending but only 29.4% expect financial improvement in 2026, with half anticipating flat wages and rising expenses.
• BNPL usage among bridge millennials surged 56% to 25% in December, with 42% also using credit card installment plans, demonstrating financing tools as core budget infrastructure rather than occasional assistance.

Summary

Key Economic Indicators:

U.S. consumer spending rose 0.4% month-over-month in December 2025, outpacing personal income growth of 0.3%, according to Bureau of Economic Analysis data released February 20, 2026. Wage and salary growth slowed to just 0.2%, the weakest increase since June. GDP expanded at an annualized 1.4% in Q4 2025, down sharply from 4.4% in Q3, marking the slowest year-end growth since 2018. Full-year 2025 GDP increased 2.2%.

Spending Patterns:

Consumer spending is shifting from goods to services. Goods spending declined 0.1% in December (first drop in six months), with durable goods falling 0.3%. Services expenditures jumped 0.7%, driven by housing, healthcare, travel, and dining. Consumer spending contributed 2.4% to Q4 GDP growth, though at a slower pace than previous quarters.

Labor Economy Divide:

Workers earning $25/hour or less represent over one-third of U.S. employees and drive $1.7 trillion in annual spending (15.1% of total). Only 29.4% expect improved finances in 2026, while 27.2% anticipate falling behind. Nearly half expect unchanged income and rising expenses.

Consumer Sentiment:

University of Michigan's consumer sentiment index rose 0.4% in February but remains 12.5% below year-ago levels. Year-ahead inflation expectations declined to 3.4%, the lowest since January 2025. Approximately 46% cited high prices as a financial strain.

Credit Usage:

Buy Now, Pay Later (BNPL) usage surged 56% among bridge millennials in December, with 25% adoption. Credit card installment plans showed similar trends at 42% usage, indicating BNPL has become structural budget infrastructure for younger consumers managing tight cash flows.