Institute Insights — 07-26-2026

Summary

• Spending at discount apparel retailers and value-oriented grocers accelerated in early 2026 as consumers sought value.
• Lower-income households gained share at discount retailers and value grocers despite higher-income households accounting for a disproportionately large share of overall retail spending.
• Lower-income workers traded down more aggressively than higher-income households, with spending at discount apparel stores growing five times faster among the lower-income group.
• Middle-income households contribute nearly a quarter of US GDP through their spending and account for roughly one-third of spending at grocery stores, restaurants, hobby shops, and general merchandise retailers.
• Middle-income household spending growth remained solid since mid-2024, with strong momentum in airlines and jewelry during the second quarter of 2026.
• Inflation recently outpaced after-tax wage growth for middle-income households, but rising wages offset higher gasoline costs to support spending on necessities and discretionary purchases.
• Business creation continues to rise despite economic uncertainty, with Gen Z driving an outsized portion of recent growth.
• Business application growth in June was more than double that of Millennials and Gen X.
• A divergence exists between overall business applications and those signaling plans to hire workers, particularly in the information sector, suggesting AI may be lowering barriers to starting a business.
• Small business profitability growth turned positive in June for the first time this year, supported by stronger revenues and improved hiring activity.
• Small business owners continue to face persistent cost pressures and elevated interest rates, though loan payment growth suggests demand remains modestly resilient.
• Hiring has strengthened among small businesses, particularly in finance, insurance, and real estate firms, indicating intact labor demand in many white-collar industries.