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

But beneath the headline strength, December’s data, which was released on Tuesday (Jan. 20), point to a more divided consumer landscape, where income increasingly determines both spending behavior and confidence about the year ahead.

The Fed’s survey shows that households reported a median 4.9% year-over-year increase in nominal monthly spending in December, up from 4.1% in August and higher than December 2024. While well below the post-pandemic surge seen in 2022, the data suggests spending growth has stabilized above pre-pandemic norms rather than continuing to cool.

 

That apparent resilience, however, masks growing bifurcation. The Fed’s data shows consumers are becoming more selective, with spending growth increasingly tilted toward necessities rather than discretionary categories.

In December, households reported higher expected spending growth for food at 5.4%, medical care at 5.3% and housing at 4.1%. Expected growth for food and medical care both reached series highs, underscoring how essential costs continue to dominate household budgets. Utilities spending expectations held steady at 4.6%.

By contrast, expected growth declined modestly for transportation and recreation, while clothing spending edged higher but remained comparatively subdued. The pattern suggests consumers are still spending, but with a sharper focus on non-discretionary needs.

Large Scale Purchases are Tempered

The same selectivity shows up in large purchases. While overall spending growth firmed, the share of households reporting large purchases such as furniture, vehicles, home repairs and vacations declined in December. At the same time, spending on homes, appliances and electronics ticked higher, pointing to targeted rather than broad-based confidence.

These shifts reinforce the idea that households are not pulling back wholesale, but instead making deliberate choices about where to allocate incremental dollars.

Income Shapes Expectations and Behavior

Income remains the most important dividing line. Among households earning less than $50,000 annually, the share reporting at least one large purchase fell from 46% in August to 40% in December. For those earning between $50,000 and $100,000, that share declined from 66% to 61% over the same period.

Higher-income households, by contrast, showed little change. Seventy-seven percent of households earning $100,000 or more reported at least one large purchase in December, maintaining the highest level of spending activity across income groups.

Looking ahead, households expect spending growth to moderate. Median expected monthly spending growth over the next 12 months rose slightly to 3.4%, up from 3% in August, signaling continued expansion but at a slower pace than current reported growth.

PYMNTS Intelligence data adds context to the Fed’s findings. Headed into the final months of the year, we found that financial cushions remain fragile for a large segment of the population.

Households with stronger savings are pulling further ahead, while those without buffers continue to fall behind. Only 48% of consumers say they are confident they could cover a $2,000 emergency within 30 days, despite half reporting more than $2,500 in liquid savings. Confidence jumps to 80% among households not living paycheck to paycheck, but falls to just 15% among those struggling to pay bills.

The report also highlights a disconnect between expectations and reality. While 52% of consumers say they expect to save more in the coming year, only 24% actually increased their savings in the prior six months, suggesting optimism may not translate into improved financial resilience for many households.

Taken together, the Fed’s survey and PYMNTS Intelligence data suggest that consumer spending is likely to remain a stabilizing force for the economy in 2026. But the foundations of that spending are uneven.  Higher-income households continue to drive discretionary and large-ticket purchases, while lower-income consumers focus on essentials and remain vulnerable to shocks.