July 1, 2026 - Market Daily

Consumer Spending Rose 0.7% in May as Energy Costs and Health Care Drive a Widening K-Shaped Economy

Market Daily Staff 2 on July 1, 2026

U.S. personal consumption expenditures increased $156.1 billion in May 2026, a 0.7% month-over-month gain that beat the 0.6% consensus forecast and accelerated from a revised 0.4% increase in April. The Bureau of Economic Analysis report, released June 25, showed spending growth driven disproportionately by gasoline, health care, and financial services, categories that reflect rising costs rather than rising demand, while the accompanying inflation data reinforced the Federal Reserve’s increasingly hawkish posture on interest rates.

Key Takeaways

U.S. personal spending rose 0.7% ($156.1 billion) in May, beating forecasts, with services spending ($94.3 billion) outpacing goods spending ($61.8 billion)
The PCE price index rose 4.1% year-over-year, the highest reading since April 2023; core PCE (excluding food and energy) increased 3.4% annually, the highest since October 2023
Personal income also climbed 0.7% ($181.6 billion), well above the 0.4% forecast, driven by farm proprietors’ income and compensation gains
The personal saving rate rose to 3.0% from 2.6% in April but remains well below pre-pandemic norms
The top 10% of U.S. earners now account for a record 49% of all consumer spending, according to the Mercatus Center, while the top 20% of households hold nearly 72% of total wealth

Gasoline and Health Care Account for the Largest Spending Increases

The composition of the May spending increase reveals more about the pressures consumers face than about their willingness to spend. Of the $61.8 billion increase in goods spending, $21 billion came from gasoline and energy goods alone, a direct consequence of elevated oil prices tied to the ongoing Middle East conflict. Recreational goods and vehicles added $7 billion, motor vehicles and parts contributed $5.3 billion, and food and beverages accounted for $4.6 billion.

Services spending, which accounted for 60% of the total increase at $94.3 billion, was led by financial services and insurance ($28.4 billion), health care ($22.3 billion), and housing and utilities ($22.3 billion). These are categories where consumers have limited ability to reduce their exposure; health insurance premiums, rent, and utility bills are not discretionary line items. The Bureau of Economic Analysis data effectively shows that much of May’s spending growth flowed into categories where price increases, not consumption volume, drove the numbers.

Inflation-adjusted consumer spending rose 0.3% in May after a flat reading in April, a figure that strips out the price effects and gives a cleaner picture of how much additional goods and services households actually consumed. The gap between nominal spending growth (0.7%) and real spending growth (0.3%) captures the portion of the headline figure that reflects inflation rather than genuine demand expansion.

The PCE Inflation Reading Reinforces the Federal Reserve’s Hawkish Turn

The PCE price index, the Federal Reserve’s preferred inflation gauge, rose 4.1% on a year-over-year basis in May, the highest reading since April 2023. Excluding food and energy, core PCE increased 3.4% annually, the highest since October 2023. On a monthly basis, both the headline and core indexes rose 0.3%. The Dallas Federal Reserve Bank’s trimmed mean PCE inflation rate, which removes the most volatile price components, stood at 2.4% over the 12 months ending in May, a figure closer to the Fed’s 2% target but still above it.

The inflation data arrived roughly a week after the Federal Open Market Committee adopted what markets widely interpreted as its most hawkish language since the current tightening cycle began. Fed Chair Kevin Warsh stressed the importance of price stability, and the FOMC’s post-meeting statement explicitly committed to “deliver price stability” after missing the 2% inflation target for five consecutive years. Officials removed a previously signaled rate cut from their projections and indicated that a rate hike remained a possibility. CNBC reported that traders are pricing in at least one rate hike by the end of 2026, according to LSEG data.

The K-Shaped Consumer Economy Continues to Deepen

The aggregate resilience of consumer spending masks a deepening divide between households at the top and bottom of the income distribution. The Mercatus Center at George Mason University reported that the top 10% of U.S. earners now account for a record 49% of all consumer spending, a concentration that has been building since the pandemic but accelerated in 2025 and 2026 as equity market gains boosted the financial positions of wealthier households.

TD Economics documented the structural underpinnings of the divide in a June 2026 analysis. The top 20% of U.S. households held nearly 72% of total household wealth as of Q4 2025, a share that has widened since 2022. Consumer spending has outpaced disposable income for several consecutive quarters, indicating that households are drawing down savings and relying on wealth effects from rising asset prices to sustain their spending. TD Economics noted that the One Big Beautiful Bill Act tax cuts are expected to further entrench the K-shaped dynamic, with the majority of benefits flowing to middle- and higher-income households.

On the other end, the University of Michigan’s Index of Consumer Sentiment recorded an all-time low in January 2026 among Americans without a college degree, a data point highlighted by Washington consultant Bruce Mehlman and cited by the Mercatus Center. The warehouse workforce, heavily affected by reduced import volumes under the tariff regime, has declined by more than 50,000 over the past 12 months.

Discretionary Spending Intentions Rebound Even as Financial Well-Being Declines

Deloitte’s ConsumerSignals survey added another layer to the picture. The firm’s financial well-being index slipped in April as headline inflation reaccelerated to its highest reading since early 2024. Gas and grocery price expectations are holding at their highest levels in years, according to the survey. Yet discretionary spending intentions rebounded for a second consecutive month, a seeming contradiction that Deloitte attributes to the bifurcated nature of the consumer base: higher-income households, buoyed by stock market gains and steady wage growth, continue to spend on non-essential categories even as lower-income households report increasing financial strain.

A YouGov survey conducted in February 2026 found that 53% of Americans set a household budget for the year, up from 46% in 2025, with 66% of those expecting their finances to worsen planning to cut back on dining out. The personal saving rate rose to 3.0% in May from 2.6% in April, a modest improvement that still sits well below the 7% to 8% range that prevailed before the pandemic.

The May PCE report confirms that American consumers are still spending, but the composition of that spending, concentrated in non-discretionary categories and driven disproportionately by the wealthiest households, suggests an economy where aggregate resilience and household-level fragility are not contradictions but two sides of the same data point.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Readers should consult a qualified financial advisor before making investment decisions.

Frequently Asked Questions

What is the PCE price index and why does the Federal Reserve watch it? The Personal Consumption Expenditures price index, published monthly by the Bureau of Economic Analysis, measures the prices that U.S. consumers pay for goods and services. The Federal Reserve uses core PCE (excluding food and energy) as its preferred inflation gauge because it captures changes in consumer behavior, such as substituting cheaper goods when prices rise, making it a broader measure than the Consumer Price Index.

What does a “K-shaped economy” mean? A K-shaped economy describes a recovery or growth pattern where different segments of the population move in divergent directions. The upper portion of the K represents higher-income households whose wealth and spending are rising, while the lower portion represents lower-income households experiencing stagnant wages, declining confidence, and increasing financial pressure.

How does the Middle East conflict affect consumer spending data? Elevated oil prices driven by the U.S.-Iran conflict have increased the cost of gasoline and energy goods, which accounted for $21 billion of the $61.8 billion increase in goods spending in May. These price increases flow through to transportation costs, utility bills, and the prices of goods that rely on fuel-intensive supply chains.

What is the personal saving rate and why is it significant? The personal saving rate measures the percentage of disposable personal income that households save rather than spend. The May 2026 rate of 3.0% is well below the 7% to 8% range that prevailed before the pandemic, suggesting that consumers are drawing down savings to maintain spending levels, a pattern that raises questions about long-term consumer durability.

When is the next major economic data release? The June nonfarm payrolls report from the Bureau of Labor Statistics is scheduled for Thursday, July 3, moved up one day from its usual Friday release due to the Independence Day holiday. The report is closely watched by the Federal Reserve for signals about labor market health and wage growth.

The Layoff Wave Never Hit Agencies. Here’s Why.

Market Daily Staff on July 1, 2026

Executives braced for it. Industry conferences warned of it repeatedly, and loudly. The prediction was stark: artificial intelligence would trigger mass layoffs at creative and digital agencies. A new survey of the sector shows the anticipated collapse in agency headcount simply didn’t materialize.

Productive, a software platform for managing agency operations, surveyed 181 agencies in September 2025. The results cut against the prevailing narrative. Sixty-five percent of respondents reported positive revenue growth in the AI era, and among firms posting those gains, roughly half maintained or raised rates, a sign that efficiency improvements are translating to business strength rather than staffing purges.

Only 3% of agencies surveyed reported significant staff reductions directly attributable to AI adoption. Another 12% trimmed a few positions. The remaining 85% either kept headcount steady or didn’t consider AI a driver of layoffs at all.

“This is the inverse of what many people predicted,” said Tomislav Car, co-founder of Productive. The data suggests that rather than replacing workers, agencies are redistributing tasks and accelerating output with existing teams.

The Headcount Paradox

Labor has stayed stable, but how agencies deploy people has shifted considerably. Responses pointed to a consistent pattern: agencies handling more client work with the same number of people, a dynamic powered by AI tools that compresses project timelines and cuts repetitive work out of daily schedules.

Among the 65% posting revenue gains, roughly half maintained existing pricing or raised rates. Only 13% of growing firms cut prices. Agencies have leveraged AI-driven efficiency not to undercut competitors, but to expand margins and scale output without proportional headcount growth.

Worth noting separately: some firms paused hiring plans rather than laying people off. A subset of respondents indicated they’d deferred recruitment because AI reduced the urgency of adding staff to cover administrative load or routine tasks.

Economists call this “hiring suppression.” Growth occurs without commensurate headcount expansion. The workforce stays intact, but new hiring slows because machines absorb the incremental work that would otherwise require another hire.

Redeployment, Not Replacement

Agencies have generally chosen to retrain existing staff rather than cut positions. That strategy appears to be broadening individual workers’ skill profiles in ways that weren’t planned for.

Creative roles are intersecting with technical competencies. Copywriters are picking up basic prompt engineering. Designers are learning to evaluate and edit AI-generated outputs. Hybrid skill sets are emerging organically as teams experiment with new tools, not because anyone mandated it.

At the same time, AI proficiency is becoming a baseline expectation. Agencies now expect many roles, from finance to human resources to creative, to incorporate AI tools into daily workflows. The shift isn’t replacing specialists so much as layering new competencies onto existing roles.

Survey respondents indicated that broadened skill acquisition happened faster with AI assistance. Employees picked up new technical domains more quickly when they used AI as a learning aid, a dynamic that let teams tackle a wider range of client needs without expanding payroll.

The Midmarket Reprieve

The report reflects the 20-to-50-employee segment of the agency market. Larger holding companies and smaller boutique shops may face different pressures, given that economies of scale and resource constraints shape how AI adoption moves through different business models.

The midmarket agencies, long perceived as most vulnerable to AI-driven disruption, have so far avoided the structural layoffs that dominated discussions just three years ago. Whether that reprieve holds as AI tools mature and competitive pressure sharpens is genuinely unclear.

For agency leaders, the lesson is narrower than the headlines suggested. AI has changed how the work gets done without gutting the teams doing it. The firms posting gains treated the technology as a tool for their existing people, not a replacement for them. If a reckoning is still coming, this data suggests it has not arrived yet, and the agencies that retrained rather than cut look best positioned for whatever the next phase brings.

How ibelanja Could Help Reshape Everyday Spending

Market Daily Staff on July 1, 2026

Many of the most transformative companies of the past fifteen years share a curious trait. Most of them did not actually invent anything new.

Ride hailing apps did not invent the car. Home sharing platforms did not build a single hotel. Short video platforms did not create video. None of them introduced a product the world had never seen. What they introduced was a new way for people to behave around things that already existed, and that turned out to be more powerful than any new product could have been.

This is one of the most underappreciated lessons in modern business. The biggest opportunities are not always in making something new. Sometimes they are in changing how people relate to something old, enormous, and taken completely for granted. If that is true, then the most interesting question about the next wave of change is simple. Which everyday behavior is still stuck in the past, waiting for someone to reimagine it?

Reshaped without a single new product

Look closely at what actually happened in each case, because the pattern is consistent.

Transport existed for a century before ride hailing. Cars, drivers, passengers, and the need to get from one place to another were all already there. What did not exist was a connective layer that linked the person who needed a ride with someone able to provide one, instantly, with trust and payment built in. Services such as Grab did not add vehicles to the world. They added a connection, and in doing so changed how millions of people relate to getting around.

Accommodation is older still. Spare rooms have existed as long as homes have, and travelers have always needed places to stay. What home sharing platforms such as Airbnb added was not a building. It was a way to connect a traveler with a place to stay that the traditional hotel model had never reached, made trustworthy enough to work at scale.

Content is the oldest of the three. People have told stories and performed for one another since before recorded history, and video itself was decades old. What short video platforms changed was who got to take part and how. They removed the studio, the gatekeepers, and the expensive equipment, and replaced them with a space where an ordinary person’s creativity could reach the world.

In every case the formula is the same. Take something that already exists in enormous volume. Identify the people who are shut out of taking part in it. Build the platform that connects them. Then watch an entire category reorganize around the new behavior.

What platforms actually do

Strip away the apps and the branding, and a platform does one fundamental thing. It connects communities that were previously separated and lets value move between them in ways that were not possible before.

Before the platform, the two sides existed but could not easily reach each other. The demand was real and the supply was real, but the friction between them was high enough that most of the potential value was never created. The platform’s job is to remove that friction, making connection so easy and so trustworthy that behavior changes around it. And once behavior changes, it rarely changes back.

So the real question for anyone trying to see where the next change is coming from is not which new product is being invented. It is which enormous, everyday behavior is still running on the old model, waiting for a platform to connect the people it leaves out.

The behavior hiding in plain sight

Here is a behavior bigger and more frequent than transport, accommodation, and content combined, and one that platform thinking has barely touched. Spending.

Specifically, the everyday spending people do on food and lifestyle. It happens several times a day. It involves nearly everyone. It moves enormous amounts of money. And yet, for the most part, it still runs on the oldest model imaginable. A customer pays, receives, the transaction ends, and the value flows in one direction and stops. The consumer is locked into a single role, the payer, with no ongoing rewards and no relationship beyond the meal in front of them.

That is exactly the kind of setup platform thinking exists to change. On one side are quality food and beverage merchants who want to grow but are caught in a crowded market, selling meals and chasing thinning margins. On the other side are everyday consumers whose routine spending currently gives them nothing once the payment clears. Two communities, both wanting more, separated by friction that no one had built the connective layer to remove.

iBelanja and platform thinking applied to everyday spending

This is the gap iBelanja is built to close. It takes the same connective logic that reshaped transport, accommodation, and content, and applies it to the most frequent economic activity in everyone’s life, everyday consumption.

iBelanja is a connected platform that bridges food and beverage merchants and consumers, designed so everyday spending opens into an ongoing, rewarded relationship rather than a one off purchase. For merchants, it offers a new engine of growth, where customers become loyal, repeat members rather than anonymous diners. For consumers, it turns routine spending into recognition, rewards, and a sense of belonging to the brands they already support.

The structure behind it is built to scale the way serious platforms do. iBelanja runs on three core entities, each with a clear role. iBelanja Group handles holding and overall development, iBelanja Platform handles operations and system management, and iBelanja Merchant Services handles merchant partnerships and service execution. Together they are designed to give the platform clarity, stability, and room to grow.

According to the company, its leadership reflects the blend of structure and ground knowledge that platform businesses require. Chief executive Abdul Malik Jamaran brings more than two decades in financial services, including senior roles across major banking and insurance institutions and experience managing large scale wealth operations. Founder Chew Wee Keong brings hands on food and beverage expertise, having worked with multiple restaurant brands on positioning, operational efficiency, and sustainable growth. One supplies platform discipline, the other keeps it grounded in how the food and beverage industry actually works.

Is spending the next change?

The honest answer is that no one can guarantee which behaviors become the next great platform shift. But the pattern is worth taking seriously. Every previous change looked obvious only in hindsight. The behaviors that get reimagined tend to look untouchable right up until the moment the right platform makes the old way feel outdated.

Everyday spending has every characteristic the transformed activities shared. Enormous scale, near universal participation, high friction between two communities that both want more, and a default model that has not meaningfully changed in generations. Whether everyday spending becomes the next behavior to change is the question iBelanja is built around.

Visit iBelanja today and follow them on Instagram and Facebook for updates.

Disclaimer: This content is for informational purposes only and is not intended as financial advice, nor does it replace professional financial advice, investment advice, or any other type of advice. You should seek the advice of a qualified financial advisor or other professional before making any financial decisions.