Over the past year, Americans have faced a barrage of volatility from tariff announcements to layoffs, sticky inflation, and now a war with Iran. The US economy barely grew in Q4 2025, as the Commerce Department revised its GDP estimate down once again, falling from an advanced estimate of 1.4%, to 0.7%, and now just 0.5%. Growth in consumer spending, which accounts for 70% of US GDP, was downgraded as well as the US government shutdown took a toll on American households. But, 2026 is not off to a much better start. Macroeconomic headwinds weigh on consumer finances as Americans now brace for another year of difficulties.
The University of Michigan Consumer Sentiment Survey marked the lowest level ever recorded in the 70-year history of the survey in April 2026 at just 47.6. Sentiment declined across all ages, income ranges, and political parties, with every component of the index sinking compared to the prior month. One-year expected business conditions plunged 20% from March and now sit 6% below the April 2025 reading, a month that was pressured lower by President Trump’s tariff announcements. Assessments of personal finances declined 11% from March with consumers expressing a substantial increase in concerns over high prices and weaker asset values. With this, the year-ahead inflation expectations jumped from 3.8% in March to 4.8% in April, the largest one-month increase since April 2025.
Americans have good reason to be concerned about rising prices. The US inflation rate rose to 3.3% in March 2026, the highest reading since May 2024. On a monthly basis, consumer prices jumped 0.9%, the largest increase since June 2022. Energy costs soared 12.5%, primarily due to higher gasoline costs, UP 18.9% year-over-year, as a result of the Iran war. The military conflict is materializing in a variety of impacts across the globe, and while higher energy costs are the most notable outcome, increased shipping costs and producer prices have the ability to push prices of other items higher as well, particularly imports.
Concerns over weaker assets likely stem from the capricious nature of the American equities market as of late. In April 2025, US President Donald Trump’s “Liberation Day” tariff announcement caused major US stock indices to plummet, marking their sharpest decline since the 2008 financial crisis. The CBOE Volatility Index (VIX), often referred to as Wall Street’s “Fear Index,” gauges the market’s expectation of 30-day forward-looking volatility. On April 8, 2025, the VIX surged to 52.33, its highest level since March 2020, while the S&P 500 dropped more than 12% in a single week before staging a near full recovery in May. Since then, markets have remained highly reactive to shifting tariff rhetoric, with volatility re-emerging alongside the onset of the Iran war in March 2026. The VIX climbed back to 31.05 on March 27, its highest level since the April 2025 spike.
Although a volatile stock market can produce some hefty gains if played correctly, the vast majority of Americans are not regular traders. Sudden drops in the market cause anxieties to spike, and fear of a lasting downturn to rise. Living in a state of constant worry does not bode well for American financial planning nor consumer spending. When consumers do not feel confident about their future financial prospects, they often take a wait-and-see approach, stalling investment decisions, hiring, and potential business growth plans.
This result has come to fruition as the US jobs market remains dismal to say the least. According to the Bureau of Labor Statistics (BLS), the US had almost no jobs growth in 2025, totaling just 181,000 jobs, far fewer than the 1.46 million jobs added in 2024, and the worst year for hiring since 2020 (or 2003 excluding the pandemic year). In 2025, US employers announced over 1.17 million job cuts, the highest total since 2020, and a 54% increase from 2024. Part of this was due to layoffs of roughly 320,000 US federal employees, representing the largest single jobs reduction in US history. Layoffs in 2026 are going just about as well with an estimated 217,362 job cuts announced in Q1 2026 alone. Out of the five million total separations in February reported by the BLS, 3.0 million were quits and 1.7 million were layoffs and discharges.
Then there is debt. The New York Federal Reserve reports US household debt rose by $191 billion in Q4 2025 to hit $18.8 trillion. Since Q1 2017, the number of consumers with debt collections has drastically decreased while the average collection amount per person has substantially increased, meaning that although less Americans have debt collections, those that do have high balances, making it more difficult to get out of debt. Additionally, transition into serious delinquency (90 days or greater) has been rising since the start of 2025 across all age ranges, with 18-29 year olds hitting 5.34%, the highest rate since Q1 2013. Although transition into serious delinquency for credit cards has ticked lower quarter over quarter for the younger half of the US population (18-29 and 30-39 year olds), they remain above 8%, or levels not seen since the 2008 recession. Outside of traditional credit cards, Buy Now, Pay Later (BNPL) app use has skyrocketed in recent years with an estimated 91.5 million Americans using these loans in 2025. The pay-in-four framework of these apps allows consumers to pay for items in installments with 0% interest, if the loan is paid back in four payments, otherwise penalties take effect. However, a useful tool for most Americans indicates greater underlying financial stress. For example, a LendingTree survey in April 2026 found that 29% of BNPL users report using these loans to purchase groceries, up from 14% just two years ago. 33% of respondents also reported using BNLP loans as a “bridge between their next paycheck” and 54% say they need BNPL loans to make ends meet. Rising use of BNPL loans to afford a higher cost of living underscores the financial stress Americans face, and highlights their struggle to build material wealth and weather emergency financial upsets.
There is also rising discussion around the bifurcated US economy, also known as the “K-shaped” economy, where the top 10% of income earners are doing well, stock assets are growing and spending persists at elevated levels, in contrast to the bottom 90% of income earners who feel the sting of a rising cost of living and are reducing their spending accordingly. This bifurcation can be seen in various areas of the economy but one of the most notable is in consumer spending. The Federal Reserve Bank of Minneapolis found as of Q4 2025, 45% of total consumer spending, which accounts for 70% of total US GDP, is due to the top 10% of income earners. This means the economy is becoming ever more dependent on growth from just a small handful of Americans. In the same vein, increased spending of the top 10% of income earners can also be partially attributed to the bifurcation of wage growth. As of March 2026, wage growth in high-income households jumped 5.6% year-over-year versus just 1.0% and 2.0% for lower-and middle-income groups according to Bank of America. This is the widest pay gap in growth rates since 2015. Even so, greater spending from top 10% of income earners, which consists of about 12-15 million households, cannot overcome the loss of the bottom 90% of income earners, 115 million households, when it comes to buisnesses reliant upon unit sales. As Wall Street booms, Main Street struggles because the average American has reduced discretionary spending. Brands such as Target, PepsiCo, and McDonald’s have all reported negative sales in their quarterly financial reports due to a reduction in customer traffic. Total US consumer spending adjusted for inflation barely rose in February, printing a 0.1% gain from January which was up just 0.01% from December 2025. With inflation ticking upwards once again, it is likely consumers will reduce discretionary spending even further.
To wrap this all up, Americans do not feel good about the economy or their financial prospects. And why should they? Inflation is moving higher, the stock market remains volatile, the jobs market appears bleak, and more consumers are increasingly turning to revolving debt to afford to live. For most Americans, wage growth has failed to keep up with rising inflation, and while those in the top 10% of income earners are doing well and supporting GDP growth through lucrative spending, the same cannot be said for the bottom 90% of income earners. As the saying goes, “the storm cannot last forever”, which is certainly true, but as for now, a rocky road lies ahead for the American economy.
