Consumers have never hated an economy as much as this one, and they’re taking out their frustrations by doing what they do best.
Shopping.
It’s a paradox that has defined the post-pandemic era: Americans’ unabated spending has fortified an economy that they perceive as unaffordable.
Walmart, Target, Home Depot and Lowe’s this week all reported surprisingly strong earnings. Even more confounding: They mostly delivered optimistic outlooks for the rest of the year, even as inflation is expected to remain high throughout 2026.
They’re not alone. Left-for-dead Gap is resurgent. Starbucks and Chipotle, which had both previously said consumers abandoned them because of high costs, reported that customers are dining with them again.
We’ve seen plenty of rationales for this phenomenon.
Americans are more flush with cash because of bigger tax refunds this year than last. High-income earners are enjoying record stock prices and are fueling a large chunk of the overall spending. Prices are high but not so high that people are willing to change their behavior – even if it means diving more deeply into savings and even debt to pay for stuff.
But it may just come down to a simple truth: Underestimating the American consumer has been a losing bet for years.
Strong retail earnings this past week followed back-to-back months of robust US retail sales.
Sure, rising gas prices fueled a lot of that, and these results are all backward looking in the middle of a gas price spike that has only grown worse with time.
But even stripping away items with volatile pricing like energy and building materials, a resilient consumer remained. The so-called control group, a measure of core spending that economists look to for signs of underlying strength, grew spending by a reasonably robust 0.5% in April.
“We’re scratching our heads about this,” said Keith Buchanan, senior portfolio manager at Globalt Investments. “Consumers are spending at a pace that just seems to defy gravity. The irony is they feel horribly about it.”
They really do: Consumer confidence has fallen to an all-time low in a University of Michigan survey that dates back to the early 1950s. Last week, a CNN poll showed Americans broadly feel downtrodden about their financial situations. More than three-quarters said President Donald Trump, who was elected for his promises to help make America affordable again, has made the cost of living worse.
Nevertheless, Walmart said Thursday that American consumer spending remains mostly healthy. Target on Wednesday said customers’ spending growth was widespread – shared across all income brackets over the past quarter. And Home Depot said Tuesday that shoppers remained resilient despite higher gas prices.
This is far from new. “Revenge spending” became trendy in 2021 when frustrated, home-bound consumers with expendable income started redecorating their homes. Once pandemic-era restrictions eased, some went on fancy vacations.
Consumer sentiment fell close to current levels in 2022 during the depths of the inflation crisis – yet consumers kept spending their ample, pandemic-fueled savings. Tariff fears last year also sent consumer confidence plunging – and Americans spent again, preloading goods before new tariffs hit … and continuing to buy when prices failed to rise as much as many predicted.
It seems that no matter how consumers feel about the economy, they’re willing to keep shelling out.
Of course, there are significant headwinds, as noted by companies that reported this week. Consumers may be spending now, but how much longer will they be willing to keep this up if the Strait of Hormuz remains closed and gas prices continue to march toward $5 a gallon?
Walmart and Target also attributed much of the spending boost to higher tax refunds, the effects of which it acknowledged would soon fade.
“While consumers have proven to be resilient so far, sentiment has been declining recently, and we’re keeping a close eye on their spending behavior,” said Michael Fiddelke, Target’s CEO, on a call with analysts Wednesday.
Walmart’s decision to stand by its somewhat tepid guidance for 2026 spooked some traders – the stock was down more than 2% Thursday in premarket trading.
Some of the newly strong companies, including Target, Gap, Starbucks and Chipotle, may also be special cases: Each has new leadership guiding the brands through turnarounds. Their success is coming off fairly miserable performance in recent quarters, giving each retailer a lower platform from which to bounce back.
And the K-shaped economy may also be skewing the results.
High-income Americans’ earnings grew 6% over the past 12 months in April, easily outpacing consumer price growth of 3.8% during that period, according to the Bank of America Institute. Middle- and low-income Americans’ pay rose far less – which means inflation ate all their pay gains and then some, forcing them to dip into savings or to borrow.
American consumers across all income groups grew their spending over the past year – but that was especially true of high-income earners. For example, Home Depot noted that its core customers are homeowners who have money in equity and in the stock market – and therefore more to spend.
“It’s like the old joke: Bill Gates walks into a bar and the average customer is a millionaire,” said Wayne Winegarden, senior economics fellow at the Pacific Research Institute, a think tank. “There’s certainly a wealth effect here.”
Despite the massive oil supply shock, gas prices still haven’t reached their 2022 records – although they’re getting closer. If those gains hold up, tax refunds wear off and the market takes a turn – three big ifs – consumers may start to pull back.
Economists have been calling for that to happen for ages. Maybe, one day, it’ll actually come true. So far, Americans haven’t got the memo.
“There’s a tipping point,” said Buchanan. “We’re surprised that we haven’t really gotten there.”
