By Teresa Rivas
Let's hear it for lighter debt burdens: They may be one reason the economy and stock market are still chugging along.
On the surface, the current setup is about as good as one might hope for. The S&P 500 is up nearly 10% year to date after hitting a fresh all-time high earlier this month, the job market looks healthy, and retail sales show that consumers are still spending. Nonetheless, investors have been reluctant to believe that American shoppers -- the main drivers of the nation's economy -- are as resilient as they seem. Hence why the State Street SPDR S&P Retail exchange-traded fund and the State Street Consumer Discretionary Select Sector SPDR ETF have lagged the broader market so much in 2026.
That worry is understandable, given that consumers have endured years of psychologically punishing above-average inflation that has pushed sentiment to all-time lows this year. One theory is that the wealthiest consumers are spending at a clip that has (so far) compensated for everyone else's belt-tightening.
Yet at least some lower-income consumers might not be doing as badly as feared, says Doug Peta, chief U.S. investment strategist at BCA Research.
Part of the equation is debt. The amount of money that households are spending on servicing debt has risen since its pandemic-era lows, but remains quite small, relative to history.
While households' debt-service burden has increased since pandemic lockdowns stifled spending, it remains lighter than at any point before the pandemic dating back to the 1980s.
In aggregate, households' spending on personal interest payments (which excludes mortgages) has outgrown disposable income for the first time in decades. However, that's not as concerning as it sounds, since wealthier households are taking on the lion's share of the new debt: The top decile by wealth accounts for some 37% of consumer debt growth versus 8.5% in 2019.
"All in all, the top decile grew its consumer debt at a 10.9% annualized rate while all other households grew theirs at a 2.2% clip, well below 3.6% inflation," Peta notes.
By contrast, in real terms -- adjusted for inflation -- the bottom half of households reduced their balances.
The story is much the same when broken down by income. The top one percent more than tripled their outstanding balances in the last six-plus years (21% annualized), and the rest of the top quintile grew their balances at a 5% rate. At the same time, balances for the bottom four quintiles barely budged, staying below inflation rates. "Containing debt growth has helped the rank-and-file keep spending at an expansion-consistent rate despite sluggish income growth," Peta notes.
It's not just debt, though -- the wealth effect from the stock markets' new highs is also helping consumers across the board.
Although the richest Americans still own the most stocks, households in the bottom half of the wealth distribution have been putting more money into the market. The value of their stock holdings has grown at an annualized rate of just over 20% since the fourth quarter of 2019, compared with the upper half's 10.6%. "With equities as the catalyst, the bottom half has seen its wealth grow nearly twice as fast as the top half across the 25 quarters of the current cycle encompassing the COVID recession and subsequent ongoing expansion," Peta writes.
It's true that older Americans are still by far the wealthiest, but households headed by someone under 40 have seen the greatest equity appreciation, and subsequently, the largest gains in wealth on a percentage basis.
Naturally, that's coming from a lower base, as lower-income Americans haven't traditionally had much invested. Moreover, it's not as if everyone is simply selling their stocks to fuel spending. Peta estimates that half of all households don't save any of their paychecks in a normal year, meaning "this can't go on forever," as he puts it.
"Consumption can't outgrow income indefinitely, especially when the savings rate is already at rock-bottom level."
For now, however, less debt and more investments have allowed plenty of Americans to keep on spending.
Write to Teresa Rivas at teresa.rivas@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 22, 2026 14:09 ET (18:09 GMT)
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