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

Core Insights - Consumer spending shows resilience despite inflation and economic uncertainty, with a median 4.9% year-over-year increase in nominal monthly spending reported in December, up from 4.1% in August [3] - There is a growing bifurcation in consumer behavior, with spending increasingly focused on necessities rather than discretionary items [4] - Higher-income households maintain spending activity, while lower-income households are more selective and cautious in their spending [8][9] Consumer Spending Trends - Households expect higher spending growth in essential categories: food at 5.4%, medical care at 5.3%, and housing at 4.1%, indicating a focus on essential costs [5] - Expected growth for transportation and recreation has declined, while clothing spending has edged higher but remains subdued, reflecting a shift towards non-discretionary needs [6] - The share of households reporting large purchases has declined, indicating a more targeted approach to spending rather than broad-based confidence [6] Income Disparities - Among households earning less than $50,000, the share reporting large purchases fell from 46% in August to 40% in December, while those earning between $50,000 and $100,000 saw a decline from 66% to 61% [8] - Higher-income households (earning $100,000 or more) reported a stable 77% participation in large purchases, maintaining the highest spending activity across income groups [9] Financial Resilience - Only 48% of consumers feel confident they could cover a $2,000 emergency within 30 days, despite half reporting over $2,500 in liquid savings, highlighting fragile financial cushions for many [11] - There is a disconnect between consumer expectations and reality, with 52% expecting to save more in the coming year, but only 24% having increased their savings in the past six months [12] Economic Outlook - The Fed's survey and additional data suggest that consumer spending will likely remain a stabilizing force for the economy in 2026, but the foundations of this spending are uneven, with higher-income households driving discretionary purchases while lower-income consumers focus on essentials [13]