[Music plays through opening]
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2026 Midyear Outlook
Inside the American wallet
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Please read important information at the end of this program. Recorded on 6/10/26.
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Marci McGregor
Head of Portfolio Strategy
Chief Investment Office
Merrill and Bank of America Private Bank
Marci McGregor
Hi, I'm Marci McGregor, Head of Portfolio Strategy for the Chief Investment Office. As part of our 2026 Midyear Outlook, we're going to take a look at an essential driver of the American economy, the U.S. consumer. In the first half of the year, we've seen consumer spending continue to grow, even while American wallets experienced rising inflation and spiking oil prices. The overall consumer health is strong, according to the Bank of America Institute, which tracks consumer behavior.
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K-shaped economy: An economy where upper-income spending rises, while lower-income households hold back.
But beneath the top line numbers is a k-shaped picture, which shows upper income consumers spending more, while lower income brackets are pulling back on discretionary spending. To help us understand these trends and why they matter to investors, I'm happy to have with me Liz Everett Krisberg, head of the Bank of America Institute. Liz, thanks for being here.
Liz Everett Krisberg
It's always great to be here.
Marci McGregor
Let's start with the overall health of the U.S. consumer. So your latest data shows strong headline spending, but really uneven patterns beneath a k-shaped pattern when we think about below the surface. So how do you think investors should think about that divergence in spending? And is the strength of the spending in the upper end of that k-shaped bracket sustainable?
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Liz Everett Krisberg
Head of the Bank of America Institute
Liz Everett Krisberg
We've seen month after month, this is the strongest spending growth we've seen in four years, even with gasoline. Right. It's not just the prices at the pump that are driving this. But you're also right that that headline strength is masking unevenness underneath. Higher income spending is growing faster, much faster than middle, middle and lower income spending.
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Closing the K-gap?
May spending gap between higher- and lower-income households was the lowest since June 2025.
Source: Bank of America Institute Consumer Checkpoint. Data as of June 11, 2026.
Liz Everett Krisberg
That being said, in May we started to see a narrowing of that, and the narrowing wasn't higher income retreating, it was actually lower and middle income starting to narrow the gap. We're starting to see that narrow a bit, which is good news.
Marci McGregor
A major driver of consumer spending so far this year has been the tax refunds that were really fueled by the One Big Beautiful Bill act. Do you expect that stimulus to carry on throughout the rest of this year or has it run its course?
Liz Everett Krisberg
Right. So really, really important question. Because as everybody knows, you don't get your tax refund every month, right? It's a one-time-of-year thing. We saw, in our data, increases of about 10% in terms of tax refunds across the board. And that can be a good thing for as a catalyst for incremental spending. It also can help offset some prices, higher gas prices, other inflation.
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The OBBBA tax refunds:
- Approximately 20% spent on purchasing
- Almost 50% was deposited
- About 25% went to debt
What we saw in our data tracking only about 20% of that tax refund was initially spent on on purchasing things. Almost half of it went into deposits and is still sitting there as a support and as a potential buffer for incremental spending going forward. And about a quarter of it went to pay down debt. So what I'd say is that the improved tax refunds are helping. We haven't used all of that up yet, but it's not going to last forever. So it's not something that we really want to depend on going forward. But right now it's helping the consumers weather the storm.
Marci McGregor
And the timing of that tax refund also really helped provide a cushion, especially while prices were spiking at gas station.
Liz Everett Krisberg
Exactly. But I would also say that there are other buffers that the consumer has. So when we look at the amount of money that consumers have in their checking and their savings account, the deposit balances, those remain well above inflation-adjusted levels before the pandemic. The wealth effect in terms of what's happening in the market, that's also providing support, more for higher income consumers than lower, but is also another area of support.
Marci McGregor
So you've mentioned some softness, and we've seen it in the data around the nice-to-have discretionary categories when we analyze consumer spending. Do you think that that is the very early signs of maybe demand fatigue when we think about the consumer?
Liz Everett Krisberg
So I'd say rather than seeing softness in the discretionary, we're seeing more select activity. What we're seeing is we're seeing the consumer be smart and we're seeing them adapt, but they're not pulling back on discretionary. Lower income consumers are also growing their discretionary growth. They're being selective about what they do. They're being careful. But they're still growing their discretionary spending.
Marci McGregor
I think of it as a consumer that maybe is recalibrating, but is still out there spending. And as you mentioned, we've seen in the data, the leisure, the hospitality spending remains strong.
Liz Everett Krisberg
Restaurant, travel. Absolutely. But we are also seeing the consumer adapt and maybe trade down and be more selective. So rather than shopping at the premium grocer, for example, they're going more to the value. They're making these small changes. They're being very deliberate in how they're spending their money, but they're able to continue to still grow their spending. And it's not just by pulling back on the nice to haves.
Marci McGregor
Let's talk artificial intelligence. AI and its impacts are frankly just part of every conversation that you and I are having these days. Where do you see the impact to the consumer?
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AI services in the home
- Around 3% of households pay for AI services
- AI payments are up 38% from the 2024 average
Source: Bank of America Institute, data as of March 6, 2026.
Liz Everett Krisberg
I think we're seeing the consumer begin to use AI to actually make interesting spending decisions. We did it analysis that looked at how many consumers are paying for AI services. And that's actually increased by almost 40% relative to 2024. It's still a relatively low number paying for services, but you are seeing the consumer use that to help with their spending and make their decisions. But I think on the flip side to that, where AI is really going to have an impact on the consumer is the impact it has on the labor market. And we've been reading about this and everyone's been talking about it. You know, is I going to get rid of every job and what we see and what our colleagues in Global Research have, have published, is that AI is more likely to be an impact, shifting what people do than eliminating jobs altogether. But I'm kind of curious, what do you what are you seeing, what are you hearing as it relates to AI?
Marci McGregor
I mean, first I would say there's a tremendous amount of anxiety when it comes to the impact of AI on the labor market. Now we're seeing it a little bit, I think in new grads and younger workers. Right. That part of the labor market has been a little bit soft. So I think it's going to create entire industries and jobs and categories that are frankly unknown to us right now. But big picture when I think about you mentioned productivity I think AI is going to drive productivity in the U.S. economy. If we think about this backdrop, we're in, where corporate profits are strong. That tends to be very supportive of the labor market. So it's worth watching. It may be disruptive, but I think it'll be a net job adder at the end of the day, and we're just at that precipice right now of kind of ubiquitous use.
All right, so let's look out over the next few quarters, let's say, what do you think is the most underappreciated risk to the U.S. consumer? If you look out a little bit further and maybe is there anything in your data right now that is making you feel a bit cautious?
Liz Everett Krisberg
So I think as we look out, the thing that we should all be aware of and thinking about is that this headline strength may be masking some issues underneath. And right now, again, spending is up, wages are up underneath. We're seeing more recently lower and middle income are actually starting to close the K, which is a positive.
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Risks to Watch:
- A weakening labor market
- Continuing inflation
But if that were to change, if we were to see the labor market start to to fall off again, I would be a bit more concerned, particularly if we see it on the higher income consumer, because they have been the engine of growth that's been holding it all up. But I'm curious what you think on that, too.
Marci McGregor
Yeah. You know, I think the thing that has struck me, maybe throughout this entire decade of the 2020s is the resilience of the consumer. But I would attribute that to the health of the labor market.
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Risks to Watch:
- A weakening labor market
- Continuing inflation
The other area I would watch closely is, of course, inflation. But I would watch the consumer and the impact of gas prices.
There's a great stat about the wallet share that we spend at the pump, because if you just rewind to 2022, when gas prices were at a similar level, even back just a few years ago, it was about 5% of, what we would spend on fuel, was about 5% of our income, and that's dropped to around 3% just over these last few years. And I think that's because it's a story of rising wages that have supported the consumer.
Liz Everett Krisberg
Right. Exactly, exactly.
Marci McGregor
All right. Last question. If you could sum up your expectations for the consumer over the next six months, in one word, what would it be?
Liz Everett Krisberg
Well, I'm going to use a word that, that you used, because it's the only word that's been appropriate really for the last two years, which is resilient. The consumer continues to be resilient. And why are they resilient? It's because the labor market continues to allow them to be. That, plus deposit balances that haven't been drawn upon yet. That plus wealth effects, the consumer continues to be resilient.
Marci McGregor
I love it. We'll end on resilience. Love it.
Thank you for being here.
Liz Everett Krisberg
Of course. It's always good to be here.
Marci McGregor
For more perspective on the evolving U.S. consumer and what it means for markets, be sure to watch the 2026 Midyear outlook webcast from the Chief Investment Office and speak to your advisor, if you work with one, about how economic and market conditions could influence your investments and portfolio over the rest of the year and beyond. Thanks for watching.
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Important Disclosures
The opinions expressed are as of 6/10/26 and are subject to change.
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
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Bank of America Institute is a think tank dedicated to uncovering powerful insights that move business and society forward. Drawing on data and resources from access the bank and the world, the Institute delivers important, original perspectives on the economy, sustainability and global transformation. Any materials indicated as prepared by Bank of America Institute are solely those of Bank of America Institute, and are not the product of the BofA Global Research department, Merrill or any other department of Bank of America Corporation or its affiliates and/or subsidiaries (collectively Bank of America).
Gas price and wallet share statistics are from Bank of America Institute and Bureau of Labor Statistics as of April 26, 2026.
The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
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[End of transcript]
American consumers get gold stars for resilience this year. Despite rising inflation and concerns about the potential impact of AI on their jobs, they've kept spending. And while it's true that upper-income households are reaching for their wallets more than those in the middle- and lower-income ranks, that K-shaped gap has begun to narrow, reports Liz Everett Krisberg, head of the Bank of America Institute, which tracks data across the economy. "And that's good news," she adds. After all, consumer spending accounts for nearly 70% of the U.S. economy,Footnote 1 helping to power corporate earnings and boost market performance.
In the video above, Krisberg takes viewers inside the American wallet, revealing what consumers are purchasing (and cutting back on); where some are getting shopping advice (AI, anyone?); and why they feel confident about spending. Leading the conversation, head of Portfolio Strategy Marci McGregor pressure tests the consumer resilience that has buoyed markets and highlights risks to watch as you monitor the markets and manage your portfolio.