Consumers still spending as balance sheets hold up

Dave Harrison Smith, CFA
Chief Investment Officer
May 27, 2026

Consumer confidence weakened again in May, with the University of Michigan index falling below the previous June 2022 trough and setting a new all-time low. In the survey, consumers frequently cited rising costs of living as the leading factor in their worsening outlook. Expectations for future inflation also played a role, further weighing on sentiment.

The confidence index has been in a downward trend for much of the last two years. This stands in sharp contrast to strong consumer spending data and relative economic stability. Making sense of the sharp divide between ‘soft’ survey data suggesting depressed outlooks (what people say) and strong ‘hard’ spending data (what people do) has been a frequent topic of discussion among economists and financial analysts.

At least in recent periods, the ‘hard’ data has won the day, as soft consumer sentiment has not resulted in a pullback in consumer spending. Encouragingly for investors, we see evidence that households have room to keep spending. Consumer balance sheets continue to look healthy, with a boost from the recent tax refund season, in which the average refund rose 11%. That provided a timely cash infusion as higher gas prices and renewed inflationary pressures threatened real wage growth.

Household checkable deposits remain historically high

Debt service ratios remain well below crisis levels

The offset is the level of consumer debt. The aggregate level of debt continues to receive significant attention in media reports, and for good reason; the total dollar value of consumer debt continues to march higher. However, the ability to service debt levels is a more important measure for evaluating household strain. From that vantage, the data is encouraging, as the share of income devoted to debt payments has been relatively flat and remains well below the over-leveraged period leading up to the Great Financial Crisis. This suggests there is adequate household coverage for current debt levels.

Household debt service as a share of disposable income

We still see reasons for cautious optimism about the health of the U.S. consumer, a critical pillar of the current economic growth regime. We are carefully watching for signs of weakness as the one-time support from the tax rebate stimulus fades and the pain from higher gas prices bites more deeply. But for now, the aggregate story looks resilient.

The kids are (not) alright

While the aggregate consumer data continues to look solid, the averages mask stress beneath the surface. Specific cohorts are showing clear signs of distress. Young Americans, in particular, continue to face a challenging environment.

In past editions of the Morning Macro, we have highlighted elevated unemployment rates among younger demographics, both among college-educated and high school-educated cohorts. Below, we show two graphs of credit stress, broken down by age group. Both show further evidence of stress in this group. Auto-loan balances transitioning to serious delinquency have risen significantly for younger Americans and have yet to normalize. While the aggregate data may not indicate broad weakness, we do see meaningful pressure among younger households with thinner financial cushions.

Auto-loan delinquency rates by age group

Credit-card delinquency rates by age group

Taken together with employment data showing elevated unemployment rates among younger Americans, we see evidence of a generation under pressure. We are also potentially seeing it manifest in unusual ways. There is growing backlash in the younger generation against artificial intelligence and its impact on the labor market, whether real or perceived. Recent news articles have highlighted several commencement speeches in which graduates have booed the mention of AI (see here and here). These graduates are entering adulthood in a world defined by high housing costs, elevated inflation, and uncertain career paths. This is as much a societal issue as an economic one, particularly with elections on the horizon, and its impact may be felt in unpredictable ways. Somewhere out there, the next Steinbeck is penning the modern-day Grapes of Wrath. Hopefully, for history’s sake, without the aid of ChatGPT.

# # #