Fitch Ratings has signaled that U.S. consumer spending, the main engine of the American economy, is set to slow down in 2026.
The core reason for this forecast is a clear and direct causal chain: a weakening labor market is beginning to restrain household income growth. For months, data has been pointing toward this shift. Now, the evidence is becoming too significant to ignore, supporting Fitch's projection that consumption growth will cool to 1.7%.
Let's trace the key pieces of evidence. First, the most recent labor market reports paint a sobering picture. February saw a surprising drop in payrolls by 92,000, while unemployment held at 4.4%. This wasn't a one-off event; it followed revisions that slashed the number of jobs created in 2025. Together, these data points confirm that the momentum in job and income growth, which has supported consumers, is fading.
Second, this income pressure is visible in other economic indicators. While inflation has been cooling, with the headline CPI at 2.4%, it hasn't fallen fast enough to deliver a major boost to real wages, especially with shelter costs remaining stubbornly high. As a result, consumers are feeling the squeeze. Retail sales were flat in December and fell in January. Furthermore, data from the New York Fed shows a rise in delinquency rates for credit cards and auto loans, a classic sign that household budgets are under strain.
Finally, this is all happening while the Federal Reserve maintains a cautious stance. The Fed has kept interest rates steady, meaning there's no immediate relief from high borrowing costs. The central bank has emphasized that the labor market is 'stabilizing,' but recent data suggests it might be weakening. This puts the spotlight squarely on jobs and income as the primary drivers of the economic outlook, rather than monetary policy.
In short, the narrative is shifting. The story of a resilient consumer is giving way to one of a cautious spender grappling with a softer job market and tighter credit. The data from the past few months strongly validates Fitch's outlook, connecting the dots from fewer jobs to slower income growth and, ultimately, more restrained spending.
- CPI (Consumer Price Index): A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is a key indicator of inflation.
- Delinquency Rate: The percentage of loans in a portfolio that have payments that are past due. A rising rate suggests increasing financial stress among borrowers.
- Payrolls: The total number of paid employees of a company, but in economics, it often refers to the nonfarm payrolls report, a key indicator of national employment.