TD Economics Warns Consumer Spending Will Cool as Prices Bite

A strong quarter that looks weaker underneath

American shoppers are still spending. The question TD Economics keeps asking is how much of that spending reflects people buying more, and how much reflects people paying more for the same things. In the bank's notes on September's U.S. retail sales, the September consumer price index and the third-quarter GDP report, the answer is consistent. The headline numbers are strong, but they flatter what is happening underneath, and the pressure on household budgets is growing.

The main data points look healthy. Retail and food services sales rose 0.8% in September after an unexpectedly strong August.1 The Commerce Department reported that the economy grew at a 3.4% annualized pace in the third quarter, up from 2.2% in the second quarter. Consumer spending rose at a 3.8% rate, and economists had expected 3% growth overall.8 TD's weekly review found that consumers accounted for about three-quarters of the quarter's real GDP gain.5

TD's economist Ksenia Bushmeneva pointed to a weaker picture inside those figures. After adjusting for inflation, September sales volumes rose only 0.1%. The "control group" of sales, which leaves out gasoline, autos, building materials and garden equipment, also rose just 0.1%.1 Gas stations did most of the work in the headline number, as pump prices jumped more than 6% in the month.1 TD's conclusion is that spending will probably slow in the coming quarters. Households face weak real income growth, a low and falling saving rate, high energy costs and high interest rates. A solid job market and wealth gains may not be enough to make up for the hit to purchasing power.1

The broader data supports that view. Real personal spending was flat in September, and the personal saving rate fell to 3.8% from 4.0%.2 Current-dollar spending rose $113.1 billion in the month, but real spending rose only $2.6 billion, a gain of less than 0.1%.40

Groceries: easing on paper, not in shoppers' minds

Food prices show the clearest gap between official inflation data and how shoppers feel. U.S. food prices were flat in September and up 2.5% from a year earlier. Food at home slipped 0.1% while food away from home rose 0.2%.6 Grocery prices alone, seasonally adjusted, were 1.8% higher than a year ago, compared with 3.5% for restaurant prices.12

By that measure, grocery inflation is low. Marketplace noted that grocery prices are rising at about half the pace of overall inflation.20 The coverage agrees on why it doesn't feel that way: shelf prices never came back down after the 2022–23 surge. Grocery prices are about 30% above pre-pandemic levels, and wages have not kept up.20 NPR made the same point. Food inflation slowed after 2023, but prices did not reverse, so any new increase is added to a base that is already high.14

The mix of items also matters. A pound of ground beef cost $6.79 in September, 85% more than a decade ago. Eggs, at $2.27 a dozen, are far below their record of $6.23.14 Butter fell 17.3% over the year, while coffee was 44% more expensive than two years earlier.14 Food economist David Ortega told Marketplace that people only benefit from cheaper eggs if they buy eggs.20

The bigger risk is diesel. Ortega warned that refrigerated produce and frozen foods, which travel long distances, are starting to rise again as fuel costs feed through.20 Shoppers already expect this. The New York Fed's September survey found people expect food prices to rise 5.5% over the next year, about double the current official rate.9 Our reading is that grocery inflation, the most visible cost for most households, is more likely to speed up than slow down, and TD's warnings about energy costs point the same way.

Consumer confidence: one survey up, others near lows

The Conference Board's index looks better than other surveys. It rose 7.5 points in October to 91.7, its highest since June. The Expectations Index climbed to 72.6 and the Present Situation Index to 120.4.3132 The result beat every forecast in Bloomberg's economist survey.33 The consensus had been 81.0.35

The Conference Board itself urged caution. Its senior economist, Fergus McCormick, tied the rebound to gasoline prices easing from September to October. He said confidence is still on a long-term downward trend. He also said consumers plan to spend less on services and durable goods because high prices have cut their purchasing power.38 The Expectations Index is still below 80, the level the Conference Board has linked to recession risk.34 Write-in answers mentioned food, grocery and diesel costs more often.35 Only consumers under 35 and households earning $100,000 or more became more confident on a six-month basis.39

Other surveys are much weaker. The University of Michigan's final October sentiment reading was 48, slightly below September.38 The LSEG/Ipsos index fell to 45.2, its lowest since October 2011. That 5.3-point drop was the second-largest monthly decline on record.40 Inflation expectations are high on every measure, even though they are calculated differently: a 3.9% median in the New York Fed survey9, 4.7% in Michigan's40, and a 5.8% average in the Conference Board's.39 The October rebound looks like relief at the gas pump rather than a lasting change in mood. The fact that buying plans fell even as confidence rose matches TD's call for slower spending.

Subscriptions: steady price increases

Streaming bills are a less visible source of cost pressure. One tracker counts 23 price increases and one cut across the streaming services it follows in 2026. The largest single increase was fuboTV Pro, which rose 20%.41 Disney+ Premium rose from $18.99 to $21.49, and existing subscribers started paying the new price on Oct. 21.42 Peacock's increases ranged from $1 to $3 a month across its plans.49 Discovery+ raised prices on Oct. 13, a week after the Paramount–Warner Bros. Discovery merger created Skydance.46 Skydance has nearly $80 billion in debt and has promised $6 billion in cost savings. Deadline described the increase as a likely sign of more to come.47 Skydance told Ars Technica the change was planned before the deal closed.50

One analysis found that six major ad-free plans now cost $108.94 a month combined, 76% more than in January 2022.42 Music services are also raising prices. Pandora's increases reached existing subscribers' bills on or after Oct. 22.48 Each increase is small, but together they add another fixed monthly cost for households whose savings are already thin. More than half of consumers told PYMNTS their savings would cover three months of expenses or less.9

Credit: early warning signs, not yet a crisis

Credit data is mixed, and the figures being quoted measure different things. The Federal Reserve's data on commercial banks shows card delinquency falling to 2.85% in the second quarter, the eighth straight quarterly decline.21 Card charge-offs held at 3.82%, down from a 4.69% peak in 2024.30 At the same time, New York Fed data shows nearly 13% of card balances are 90 or more days past due.26 The Philadelphia Fed says much of that increase comes from older charged-off debt piling up, not a wave of new missed payments.27

The most recent monthly data points to growing strain. VantageScore found that early-stage delinquencies, 30 to 59 days past due, rose to 1.15% in September from 1.02% in August. Serious delinquencies stayed low at 0.23%.22 More borrowers are slipping from prime into near-prime and subprime credit tiers, and personal loans are getting worse at every stage of delinquency.22 Among seven large card issuers, the average delinquency rate rose to 2.62% in September from 2.51%.23 Fed data shows auto and personal installment loans moving the opposite way from credit cards, with delinquencies edging up.30 Western Asset notes that lower-income households are turning to personal loans and buy-now-pay-later for everyday purchases.29

Why it matters

Taken together, the data supports TD's view. Third-quarter spending was real, but much of it was driven by higher prices and by wealthier households. The Fed held rates at 3.75–4.0%, and two officials dissented in favor of a hike.5 TD expects at least one more increase by the end of the year because core inflation is not cooling.6 Higher borrowing costs would add to the pressures already showing up in grocery bills, subscription prices and early delinquencies. Our reading is that the consumer is not about to collapse, but spending in the fourth quarter will look more like September's flat real sales than the third quarter's strong headline figure.