Will consumer spending stay strong?
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2026 YEAR AHEAD OUTLOOK
Will consumer spending stay strong?
On screen disclosures:
Please read important information at the end of this program. Recorded on 12/1/2025.
[Chris Hyzy faces the camera, speaking directly to the viewer.]
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Chris Hyzy
Chief Investment Officer
Merrill and Bank of America Private Bank
Chris Hyzy
Welcome to our continuing series of 2026 Year Ahead Insights. I'm Chris Hyzy, chief investment officer for Merrill and Bank of America private bank. Today I'm joined by Liz Everett Krisberg, head of the Bank of America Institute, the team that analyzes proprietary data from millions of Bank of America clients to give us a near real time view of spending trends. They literally have the pulse on the American consumer and small business. Liz, welcome.
[Chris Hyzy and Liz Everett Krisberg appear on screen in a two-shot, speaking to each other.]
Liz Everett Krisberg
It's great to be here.
[Video on screen: Skaters on an ice hockey rink, a Zamboni cleaning ice, shoppers at an outdoor winter market.]
Chris Hyzy
I want to get right into it. We've surpassed the Thanksgiving holiday. We've had Black Friday, Cyber Monday, when we're talking about holiday spending. Take us through all of that as you see it right now.
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Liz Everett Krisberg
Head of Bank of America Institute
Liz Everett Krisberg
So I think, you know, as we're going through all these days of the week and all these different words, now is the time of year when the dictionaries come out with their word of the year. But if I were advising them on what the word of the year should be and what sets up for 2026, it would be resilient because that's how the consumer has performed.
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Consumer spending, wages and income continue to grow year over year.
Source: Bank of America Institute report, November 12, 2025
Liz Everett Krisberg
Spending continues to grow. Wages and income continue to grow. That being said, there are some signs of stress, you know, on the margins. We are seeing, while credit card spending, you know, is going up, and while actually we're seeing a decrease in the number of people who are carrying a balance, we are seeing a growing number of people just pay their minimums.
Chris Hyzy
Let's talk a little bit about now the drivers of the overall backdrop. You mentioned pockets of stress, whether it's overall like loan management if you will, you're not really seeing it overall in the aggregate data because who's masking over some of the weakness.
Liz Everett Krisberg
The key to understanding the consumer in general is always the labor market. And we can talk about that. But the other key is there is real disparity between what's going on in higher income households versus lower income households.
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Spending disparity: The top 30% of U.S. households by income account for over 50% of consumer spending.
Source: Bureau of Economic Analysis data
Liz Everett Krisberg
And when the reason that that gets masked is because higher income households, the top third, essentially top 30% drive more than half, well more than half of the consumer spendings. And when we look at what's going on in the labor market, what we're seeing is wage growth for higher income households is up at kind of that just off the highs of where it's been over the last four or five, six years, whereas lower income wage growth is still growing, but it's just off the lows over the last call it almost decade.
[Split screen of Chris Hyzy on left. On the right, shoppers in an outdoor holiday market, holding various shopping bags.]
Chris Hyzy
Holiday sales, you talked about resiliency. That might be the word heading into 26 and maybe for all of 26. Again. What about through the United States, any real regional spending patterns that you are witnessing in the data.
Liz Everett Krisberg
We're seeing the South and the Midwest are kind of growing their spending, whereas the northeast and the West are a bit more muted. Now, why is that? Let's take a step back. We're talking about the overall health of the consumer. One of the things you hear a lot of people asking questions about is so many households are living paycheck to paycheck. And, you know, what does that actually mean? We tried within the institute to quantify that. And what we did is we looked at how many households were spending more than 95% of their income on what we considered necessities.
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Nearly 24% of U.S. households in 2025 live paycheck to paycheck.
Source: Bank of America Institute report, November 10, 2025
Liz Everett Krisberg
And what we found was just about a quarter of households are living paycheck to paycheck. And interestingly, that's up from last year but all of that growth was in the lower income. But what we also saw going back to your regional question was the Midwest and the South had higher absolute levels of those people living paycheck to paycheck, but it was coming down, whereas the Northeast and the West had a lower number, but it was actually growing year over year.
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Tariffs and inflation are among the factors driving consumer spending.
Liz Everett Krisberg
But one of the things to understand about what's driving or at least partially driving consumer spending growth right now, particularly on the retail side, is inflation, is tariffs. So, it's not necessarily all that consumers are consuming more, and they're spending more. Some of it's going to be that price impact.
Chris Hyzy
Liz, there's much talk in the investment world about: Is AI in a bubble. Where what we have seen could be dramatically different in terms of spending. Let's talk about AI impact on small business spending.
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77% of businesses have integrated A.I. into their operations over the past five years.
Source: Bank of America Institute, 2025 Business Owner Report
Liz Everett
Sure. The 2025 Business Owners report that just came out from Bank of America, it reported that more than three quarters of small businesses are already investing in AI. And we're seeing that not just in the survey but in our data, too. So there was almost a 10% growth in the amount of money that small businesses are spending and investing in AI. And that's even as they're pulling back in some other discretionary areas like travel, like advertising. So this is something that business owners are recognizing is going to change their business. They're getting in. They're continuing to invest in it now.
Chris Hyzy
Let's talk about wild cards in spending that could mask over regional differences, differences in cohorts. It's experiential spending whether it is something like a large sporting event or a large concert, perhaps. What is the data telling you there?
Liz Everett Krisberg
So, this has really been for the past two years; we have seen people want to be together. People want live events.
[Video on screen: A still image of a fan expressing joy at a sporting event followed by a still image of fans in silhouette enjoying a live concert, followed by video of people outdoors at a skating rink.]
Liz Everett Krisberg
And what we see in our data is around these, these really significant, live events. You see an uptick of between seven and ten percent of spending in those local areas as people are one wanting to be together, wanting to see them, wanting to travel to it, but also impacting the economy around where the events take place.
Chris Hyzy
If you had to describe right now the momentum that is occurring in experiential spending, what is it in 26? Is it going to accelerate more, take a breather? Or perhaps go back to travel?
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Bank of America is proud to be the Official Bank Sponsor of FIFA World Cup 2026™
Liz Everett Krisberg
Well, I think I wouldn't fight the World Cup for anything. So, I think that in and of itself is going to be, you know, we obviously care about that, but that's going to continue to be a driver. But I think in general we're still seeing travel spending. People still want experiences. They are maybe making different decisions than they were in the YOLO. You know, we've been tied up, pent up. And so they might not be making as many decisions, but they still are experiencing the services. We saw a bit of a rebound on travel as well. But people might be making a little bit more cautious decisions. And we talked about the resilient consumer. We talked about some of the pressure on particularly on the lower income. And people are making choiceful decisions, they are still spending, but they're going to figure out where they're going to do it responsibly.
Chris Hyzy
One last question. Positive surprises. Any positive surprises in a particular trend in 26 that we should be on the lookout for that yet has not materialized.
Liz Everett Krisberg
That is a really tough question, but let me talk you through an analysis that we did that looked at where the differences were between higher and lower income spending because as we talked about, it's the higher income consumer that's driving most of the growth. But the lower income consumer is also still spending. And that we saw differences, really big differences actually in airline spending, where the lower income consumer was pulling back, in restaurants, they were also pulling back.
[Video on screen: A cruise ship in the water followed by an image of a woman standing on a cruise ship looking out at a beach.]
Liz Everett Krisberg
But the one category where everyone is growing their spend is in cruise lines.
Chris Hyzy
Wow.
Liz Everett Krisberg
Double digit growth for both lower and higher income consumers. So that is where people want to be in 2026.
Chris Hyzy
Cruising in to 2026.
Liz Everett Krisberg
Cruising into 2026, the resilient cruise into 2026.
Chris Hyzy
Liz, I want to thank you for joining me today.
Liz Everett Krisberg
Always great to be here.
[The screen flashes to white and moves to a shot of Chris Hyzy speaking directlly to the camera]
Chris Hyzy
We hope this video helps you better understand some of the ways consumer sentiment may inform behaviors in the next year and help you to identify opportunities and risks to watch out for. Keep in mind that investing is first and foremost all about your long-term goals. If you work with an advisor, they can help make sure that any decisions you make in response to short-term events and long-term trends fit with your overall investing strategy. Thanks for watching.
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[End of transcript]
That said, there are weak spots that bear watching: The top third of higher-income households drive more than half of consumer spending, inflation is a contributing factor to the rise in spending overall, and a quarter of U.S. households currently live paycheck to paycheck, notes Krisberg. Watch the video above as she sits down with Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank, to break down what, beyond inflation, is driving these spending trends from a geographic, wage and small business owner perspective. "Understanding consumer sentiment and spending can help you identify opportunities and risks to watch out for in 2026," says Hyzy.