US Consumer Spending Rebounds 1.2% as Shoppers Hunt for Value

Still spending, but buying less per trip

American shoppers are still spending in the fall of 2026, but they are choosing much more carefully, and price is driving most of those choices. The August earnings from the biggest US retailers showed this clearly. Walmart, Target and Home Depot all reported higher sales. Each described customers who still pay when the product and price are right and who pull back when they aren't.12 Walmart's sales growth was its weakest in more than six years. The company blamed its pharmacy business more than anything else, and it said overall consumer spending has stayed steady even as shoppers trade off one purchase against another.12

Walmart CFO John David Rainey put it plainly. Shoppers are putting fewer items in their baskets on each trip, he said, and higher fuel prices have squeezed them more than they were at the start of the year.12 Target, which is trying to end a slump that has lasted several years, reported a second straight quarter of sales growth. Its executives said back-to-school sales were up almost 20% from a year earlier.11 Home Depot said customers are still buying patio sets and refrigerators, purchases that usually don't need financing. Large remodels that depend on borrowing are being pushed back, and smaller jobs like painting and gardening are taking their place.12

The common thread is that people who are still willing to spend are now very particular about what they buy and where. The government data for the following month backs up that reading.

The retail sales rebound

The Commerce Department reported that retail and food services sales rose 1.2% in August to $773.9 billion. That beat forecasts and erased July's decline, which was revised to 0.5%.3 Sales were 6% higher than a year earlier.9 The control group, which strips out volatile categories and feeds into GDP estimates, rose 1.4%. TD Economics said that was the biggest nominal gain since September 2024.2

The gains were not limited to gas stations. Online retailers rose 2.6%, electronics and appliance stores 1.6%, and restaurants and bars 1.2%.9 Furniture stores rose 0.9% and clothing stores 0.7%.5 Department stores fell 0.8%, and building materials and garden equipment slipped 0.2%.9 That last decline fits what Home Depot described: consumers will make a $50 purchase but are more hesitant about a $5,000 one.

Forecasters read the report in broadly the same way, though not identically. TD Economics called July's drop a one-off caused by temporary factors and estimated that inflation-adjusted third-quarter spending was on track for about 3% annualized growth.2 Michael Pearce of Oxford Economics was more cautious. He said much of the online rebound came from a shift in the timing of Amazon's Prime Day, which he called "seasonal noise."6 He also warned that the gap between richer and poorer consumers is likely to widen again as higher gas prices squeeze real incomes.8 The National Retail Federation's chief economist, by contrast, said he has seen that gap narrow somewhat in recent months.5 That disagreement is probably the biggest open question in the consumer outlook.

Spending more to buy the same

The headline numbers need one major caveat: retail sales are measured in dollars, not adjusted for inflation.4 Consumer prices rose 3.4% from a year earlier in August, and energy prices were up 16.3%.32 After adjusting for inflation, August sales still grew a solid 0.8%, according to TD.2 The longer trend looks weaker. Statista's analysis found that retail sales rose about 24% in nominal terms between April 2021 and April 2026 but were roughly flat after inflation. In other words, households have been paying much more to keep the same standard of living.1

Incomes have not kept up. Average hourly earnings rose 3.1% in the year to August, but inflation-adjusted hourly pay fell 0.3%.4 The personal saving rate in June was the lowest since 2022.12 The University of Michigan's sentiment index fell to 48.1 in September.4 Economists now cite a familiar explanation for why spending holds up anyway. Higher-income households, helped by stock market gains and home equity, are carrying a large share of total demand. Lower- and middle-income households are using up savings and borrowing more.14 An EY-Parthenon economist said that kind of spending, funded by savings, wealth gains and credit, cannot last.12

The Federal Reserve now plays a bigger role in that outlook. On the day the August sales report came out, the Fed raised its benchmark rate by a quarter point, its first increase in three years, to roughly 3.9%.6 TD noted that 10-year Treasury yields briefly went above 5%, which is pushing up mortgage and other consumer borrowing costs.2 Big-ticket purchases that require financing were already weak, and they will be the first to feel the higher rates.

Groceries: easing, but not cheap

Grocery prices are the one area where the August data showed some relief, though it was limited. Food-at-home prices were flat from July and up 2.2% from a year earlier, below the 3.4% overall inflation rate. The Food Industry Association noted that annual grocery inflation slowed from 2.7% the month before.38

The average hides big differences between products. Beef and veal prices were up 5.9% over the year, and ground beef was up 7.2%. Fish and seafood rose 6.5%. Egg prices, by contrast, were down 23%.33 The USDA's September outlook expects grocery prices to rise 2.4% in 2026, below the 20-year average. It expects beef and veal to rise 9.4%.31

Estimates of where grocery prices will end the year vary. One industry economist told the Shelby Report that energy costs, including diesel, fertilizer and corn, could push the full-year figure to around 2.7% to 2.8%, above the USDA's midpoint.34 One outlet reported a USDA projection of 2.8% for food at home, but that figure does not match the agency's September release.3931 The more important point for shoppers is that this year's increases come on top of earlier ones. Grocery prices are about 33% higher than in December 2019, and restaurant prices are about 38% higher.33

Shoppers are responding as expected. Nearly half say they have eaten more meals at home over the past year, and half say they eat out less.34 Retailers are trying to win those customers back. Walmart cut prices on more than 11,000 items in the quarter, about twice its usual number, and paid for the cuts with tariff refunds.12 Target and Walmart are also using refund money to bring down prices on staples such as beef.18 Macy's said it received $116 million in tariff refunds and is using some of it to cut prices on furniture and fine jewelry.6

Subscriptions keep rising

While stores compete to cut grocery prices, streaming services are going the other way. Disney raised the price of ad-free Disney+ and Hulu by $2.50 to $21.49 a month each. Its ad-free bundle rose $2 to $21.99.24 The Hollywood Reporter said this was the fourth increase in four years for both services, and that streaming prices have risen about three times faster than overall inflation since 2022.25 Peacock raised prices on every tier in August, and Apple TV went up $2 to $14.99.22 Netflix raised all its plans in March, so its ad-free Premium tier now costs $26.99.23 By Fortune's count, subscribing to eight major services without ads now costs $139.41 a month.27

The pricing structures point to a strategy. Disney's ad-supported tiers rose only 50 cents, and the bundle now costs almost half as much as buying the two services separately.25 Disney has said bundled subscribers are less likely to cancel.25 Streamers appear to be betting that many customers will move to ad-supported or bundled plans rather than leave entirely. Grocers, meanwhile, are cutting prices to win the same cautious customers. Both strategies assume that shoppers are counting every dollar.

What comes next

The evidence points one way. The American consumer is not pulling back, but is no longer spending freely either. Shoppers make fewer purchases per trip, compare prices more closely, and are most likely to cut large, financed purchases, while small treats and essentials hold up. Retailers can sell to that customer, but at lower margins, with more promotions and more pressure from shoppers trading down to cheaper options.

The main risks are clear. Gas prices remain above $4 a gallon, the boost from tax refunds has worn off, and wages are not keeping up with prices.12 The Fed has also started raising rates again. Economists surveyed by Bloomberg expect consumer spending growth to slow to a 2.1% annual pace in the third quarter, down from 3.2% in the second. They describe that as a slowdown, not a sharp pullback.12 The holiday season will show whether price cuts can keep shoppers coming in. The more serious warning sign would be fewer store visits, not just smaller baskets.18