Inflation drives US spending gains as strained households cut extras

Higher prices accounted for about 0.4 percentage points of a 0.5% monthly rise in U.S. consumer spending in April, while purchase volumes contributed just 0.1 percentage points, according to PYMNTS. The findings suggest recent spending growth has been driven more by inflation than by stronger underlying demand, with the sharpest budget adjustments among households already under financial strain.

The data come from the June edition of the PYMNTS Consumer Expectations Index, titled “The Inflation Mirage: What Rising Spending Hides About Consumer Demand”. The report is based on a June survey of 2,028 U.S. adults and examines how consumers are changing spending patterns as prices remain elevated.

PYMNTS said many households continue to express confidence in their employment situation, a factor that has helped keep total consumer spending supported. Yet the report also found that stagnant income, reduced savings buffers and higher costs are pushing more financially vulnerable consumers to prioritize essential payments.

The clearest pullback is in nonessential services, including restaurants, travel and entertainment. Among consumers who live paycheck to paycheck and have difficulty paying bills, 53% said they spent less on discretionary services over the past year, while 23% said they spent more, according to PYMNTS.

Consumers who also live paycheck to paycheck but can pay their bills without difficulty showed a milder retrenchment. PYMNTS found that 41% of this group reduced nonessential spending, compared with 27% who increased it. Among consumers who do not live paycheck to paycheck, 30% reported higher spending on nonessentials, slightly above the 27% who said they cut back.

Those differences point to a split in the consumer economy. Households with more financial room can keep allocating money to travel, home projects and larger purchases. Consumers with tighter budgets are directing more of their income toward groceries, fuel, utilities and other recurring necessities.

That shift has implications for companies exposed to discretionary demand. Spending totals may still rise when prices increase, but PYMNTS’ breakdown indicates that higher nominal sales do not necessarily reflect a broad rise in the quantity of goods and services consumers buy.

Some households are responding by seeking additional income rather than relying only on spending cuts. Across financial groups, between 19% and 25% of consumers said they had taken on side work or occasional jobs, according to the report.

The use of that extra income differs sharply by financial condition. Among side workers who are struggling financially, 64% said they use the money to cover basic living costs. Among side workers who do not live paycheck to paycheck, 25% said the same.

PYMNTS also reported that the financial cushion for the most pressured households remains thin. Forty-three percent of consumers who struggle to pay bills said they could not cover a $1,200 emergency expense within one week. In the same group, 68% said their savings would last one month or less.

The report portrays consumers as actively adjusting to pressure rather than withdrawing from the economy altogether. Households under strain are reducing optional purchases, adding income where possible and protecting essential payments, even as inflation continues to shape the headline spending data.

This story draws on original reporting from PYMNTS.