Brad 00:00 

Hello and Happy New Year to everyone! I think we're still in the first week of the year, so I can say that. Welcome to our inaugural Flip Side for 2026. I am Brad Rogoff, the Global Head of Research. And joining me today for the first time, actually, on The Flip Side,  although a long time colleague of mine is Lauren Lieberman from US Consumer Research.

Brad 00:19 
Welcome to The Flip Side, Lauren.

Lauren 00:19 
Thanks so much. Great to be here, Brad.

Brad 00:19 
All right, so before we dive in, I'll make my plea here. Please don't forget to hit subscribe. So you never miss an episode of The Flip side here in 2026.

Brad 00:19 
And we're going to break down today is the US consumer backdrop with the holidays. Obviously, as the most recent event that'll help us as we look at spending you know retail sales up e-commerce strong.

Brad 00:42 
But what does that really tell us about 2026 the year ahead? I saw stores that were packed, you know, lines at registers, aisles that were very crowded. So I look at that and then I look on paper and we've seen some strong sales reported. That doesn't seem to match some of the headlines. If we listen to people look at newspapers, etc..

Brad 01:02 
On the struggling US consumer. So, Lauren, how much weight do you put in confidence surveys that tell a different story maybe than some of the stuff I was just mentioning.

Lauren 01:02 
But like you said, spending definitely held up. But confidence is still near multi-year lows. So just to put some data to it, the Conference Board's index fell to 89.1 in December, which excluding April of this year, is actually the lowest since January of 2021.

Lauren 01:24 
And the expectations gauge came in at 70.7, well below the 80 recession signal threshold for the 11th straight month. And then if you turn to the University of Michigan survey, you saw a similar story there. 52.9 in December, one year inflation expectations down to 4.2%, with most respondents actually expecting higher unemployment ahead.

Brad 01:24 
So we've got a pretty clear split here, at least at least to me.

Brad 01:46 
Right. We've got spend that is resilient sentiment that is weak. Personally I tend to be a hard data guy more than a soft data guy.

Lauren 01:46 
I hear you. But soft data can sometimes be forward looking, and it helps to answer the question of whether households keep buying through the caution.

Brad 01:46 
All right, so you gave some data points there.

Brad 02:04 
Let me give some hard data points here. Core retail sales rose around 4.2% year over year across the core holiday weeks. That excludes, you know, some of the autos, gas and restaurant stuff. But e-commerce was up close to 8%. Electronics, apparel were leading those gains. And in-store still is capturing roughly three quarters of the volume.

Brad 02:24 
Now, look, there was some concentration. You had Black Friday, Cyber Monday that accounted for about 9% of total holiday sales. Last year it was eight. So we're moving, you know, into those periods and that that does show me. Yeah, maybe there's a little bit of value shopping from consumers but still are all really good numbers.

Lauren 02:24 
Absolutely true. But beneath the aggregates we are seeing more careful checkout behavior.

Brad 02:46 
All right. Well let me give you an opportunity to explain to us what you think stood out that when we look past the headline, should lead us to be a bit more worried than it seems like I am.

Lauren 02:46 
So what we're seeing is signs of strain in the way the consumers are spending. So just to think about channels, value formats one discount stores, dollar stores, off price thrift stores all saw relative outperformance in the last full week before Christmas.

Lauren 03:08 
Super stores some traditional gift categories also underperformed year on year, where you saw consumer spending that was also more practical personal electronics and apparel. And remember, while this isn't new, the top 10% of households now account for roughly half of U.S. consumer spend. That's the highest on record going back to 1989. So, growth is increasingly carried by the upper end.

Brad 03:29 
All right. I did know a little bit of that fact. I kind of take away two things from what you just said. First, I love that we live in a world were person electronics is practical and that that's definitely new. And but the second is that I'm sort of hearing the upper end is spending. And the lower end, though is spending, albeit at discounters.

Brad 03:47 
Is that fair?

Lauren 03:47 
That is. And by the way, I would suggest you ask your kids whether or not personal electronics are essential or not

Brad 03:47 
In AI world. I mean that they have to be right? So I'm with you. It's just an evolution.

Lauren 03:47 
It's not just where consumers are spending, it's how they're paying for it. So something we've been watching and find pretty concerning is buy now, pay later.

Lauren 04:07 
So buy now, pay later. Use has surged. US volume is projected near $116-117bn 2025. And it's migrated now into essentials. What's really struck me is at 25% of buy now, pay later, users say they're using it for groceries. That number was just 14% a year ago. And further from that, intent keeps broadening. Surveys are showing that 56% of Americans say they expect to apply for a buy now, pay later loan in the next six months.

Lauren 04:34 
As of December, that's up six points since November, and the penetration is even higher among Gen Z consumers. In my mind, that's not a sign of exuberance; it's that consumers are really stretched.

Brad 04:34 
All right, well, you said something about kids. I said something about evolution which said some about Gen Z. I mean, maybe that's what's happening here. This is just a new source of credit that companies are marketing more prominently, obviously, to consumers, because I go to our securitized products research team all the time and I'm asking them, find me evidence.

Brad 05:03 
When you look at credit card delinquencies, when you look at, you know, marketplace lending, which should be one of the first things that that actually struggles when the consumer starts to struggle, that we're really seeing delinquencies in these areas pick up, and it's not occurring in a material way. And I think that would kind of be the first place it would show up.

Lauren 05:20 
Right. So again, this is where I think about the the sentiment in the forward look. So the idea of it being that buy now, pay later is so prominent. It's growing for essentials. Intent is rising. And it suggests that consumers are relying on credit for basic needs that can suggest financial strain increases the risk of debt cycles. And let's just think about if unemployment disappoints.

Brad 05:39 
Okay, so we're beating around the bush here, but we haven't mentioned the word that every economist would probably mention in the first line of this podcast, which is that we are in a K-shaped economy. Right? It's so much a K-shaped recovery, but the kind of, you know, way I'm thinking about it is we've got an upper end is that is robust enough to support economic growth, at least at trend levels here.

Brad 06:02 
And realistically, there's always going to be a difference between different types of consumers.

Lauren 06:02 
Sure. But even the healthier end of the K are showing signs of softening. So on its earnings call, Albertsons commented that middle income households, which have been resilient, are now showing signs of softening, and even at the high end, consumers are becoming more price and value conscious.

Lauren 06:22 
I directly cover the consumer staples space, and these companies are effectively selling to 100% of households, not just the top 20%. So I think they offer us a great lens as well into what's going on out there. So the conversation among the companies that I cover has been about playing both ends of the spectrum, or let's call it both ends of the K, continuing to launch premium innovation as consumers are willing to pay up for attributes that matter most to them.

Lauren 06:44 
So it's clean label, it's function forward, those sorts of things. But also consumers need to manage cash outlay. And so therefore the companies are also working with getting different and smaller pack sizes on shelf to allow the consumer to manage their basket.

Lauren 06:44 
The other thing I'll mention is that in the second half of last year, we started to see companies actually lower prices across some packaged food categories and brands because of these affordability concerns.

Lauren 07:07 
And at the very end of the year, one large household products company I met with talked about hesitancy to take additional pricing after such limited volume growth across 2024 and 2025.

Brad 07:07 
Okay, those are very helpful insights. But I'll actually be a real glass half full guy here. So what if the benefit is that everything you just mentioned, transfer pricing etc. helps keep inflation down, which ultimately helps the consumer.

Brad 07:31 
So I guess if affordability though is a concern and given the extreme bifurcation that we've just discussed, have you seen a surge in private label share?

Lauren 07:31 
So that might be a spot where you got me because interestingly, and track channel data, we're not really seeing it, or at least not in a way that looks like a big cyclical trend.

Lauren 07:47 
There are categories where it's flared up as price gaps got out of whack. The big picture we're talking tens of basis points, not hundreds. That said, there is a growing presence of discount retailers in the US, which isn't captured in the scanner market share data. Aldi now has the third highest foot traffic among US grocery footprint formats, nearly at the level of Kroger and Publix, and more than two times higher than Whole Foods.

Lauren 08:09 
The majority of the stores private label.

Brad 08:09 
Okay, I would have guessed that from some of my travels across Europe, but not back at home actually in the US. So are you talking about levels that are competing with Walmart? In terms of channel share at this point?

Lauren 08:09 
So specifically, the numbers I cited are comparing foot traffic just to the Walmart neighborhood market format.

Lauren 08:27 
But even still, Aldi's growing fast. They have significant expansion planned in the U.S over the next two years. They're targeting 3000 stores by 2028 versus Walmart Supercenter. It currently stand at 3600. But speaking of Walmart, I mean, they've been reporting such strong growth and citing market share gains amongst higher income households. So channel choice is another way in which consumers are trading down and saving money without necessarily needing to move into private label.

Lauren 08:52 
In my mind, it's more support for the notion that consumers are just shopping much more cautiously.

Brad 08:52 
All right. Let's let's zoom out a little bit here for a second, because we've cited a lot of facts about the consumer. But I mean, I think it's worth talking about some of the broader macro aspects of 2026, which I still think will support the consumer.

Brad 09:08 
So, we talked about the cautiousness in confidence surveys, the positive numbers in terms of the consumer coming out over the holidays. And I think the macro is a big part of that, right? The labor market, you know, remains supportive. Yes. We've had a small uptick in unemployment, but we've still been in this low to mid 4% range.

Brad 09:25 
We had three interest rate cuts by the fed last year. We think there'll be at least two more market. I honestly think so. At least two more, that are priced in for for this year that's certainly supportive of growth. And then on the pump right. Gas prices you went down to multi-year lows in December. We've got national averages that are sub $3.

Brad 09:46 
And that eases budgets as well. So my hard numbers look good, right?

Lauren 09:46 
So lower prices at the pump are surely helpful. And we've seen some better trends for categories where the convenience and gas channel is important, like energy drinks. But what about inflation? I mean I know core CPI is just 2.6%, but the cumulative impacts of inflation over the last 3 to 4 years have been significant.

Lauren 10:07 
I mean, just anecdotally, think about menu prices in restaurants and how much more expensive your grocery bills have become.

Brad 10:07 
I think about restaurants a lot, so I understand that comment. Don't get me wrong. And look, there has been inflation over several years. You're correct. Obviously at above  average inflation. But in 2025, one of the positive things we can say is we finally crossed over into real wage growth.

Brad 10:26 
Or stated plainly, wage growth is now outpacing inflation. And that's true if we look at it on a cumulative basis since 2022. So not a great number relative to maybe other points in time historically. But we're at least there. And I want to remind you that what you mentioned when you're talking about some of the staples companies, is that they're actually cutting prices.

Brad 10:44 
So, we also have the benefit, you know, $200 billion probably of spending tailwind that's going to come via tax cuts under the One Big Beautiful Bill, right? I think 2026 can shape up pretty well for the US consumer.

Lauren 10:44 
So, remember those tax cuts are being funded by tariffs and changes to other government programs. It will create significant new burdens for many U.S. households.

Lauren 11:05 
Lower SNAP benefits, higher health care premiums both under Medicare and the ACA, and changes to student loan programs. The Budget Lab at Yale just published a study that suggests the net impact of the OBBB is a benefit for just the top 30% of earners.

Lauren 11:05 
Now, earlier, sticking with the hard data earlier, I'd mentioned that 10% of households account for more than half of retail spending, while the top 20% accounts for north of 63% of spending.

Lauren 11:31 
In my mind, we'll just have to see whether greater spending power at the upper end really drives incremental growth, or if the net burden being faced by the bottom 70% matters more.

Brad 11:31 
I suppose what you said is just more fuel for the notion that upper income households can carry the economy at large. But our Global Chairman of Research and frequent Flip Side guest, Ajay Rajadhyaksha, actually mentioned on our sister podcast this week, The Barclays Brief, that equity wealth, especially in AI sensitive names, help support consumption at the upper end.

Brad 11:59 
So, if I continue to drive CapEx and lift parts of the equity market, could that keep spending buoyant even if confidence stays soft? I know that equity market thing. It's not a guarantee.

Lauren 11:59 
Yeah. I mean for upper income cohorts, absolutely. Equity gains can offset a lot. But for the broader population tariffs, inflation fatigue and program change is still way.

Lauren 12:20 
So the bifurcation we're seeing can persist. And I'll also just remind you that the $200 billion of stimulus that's coming this year is still dwarfed by the $400 billion that we saw in 2021. Okay. So I know it's more fun if we talk about how different 2026 is. But maybe what we're saying is that 2026 looks a lot like 2025.

Brad 12:38 
Consumer confidence remains low, driven by the percentage of the population that is feeling wallet pressure. But spending remains healthy and that is buoyed by the upper income cohorts. So by the numbers, the holiday period was clearly constructive. Spend held up well online grew lower. Gas prices helped. And the labor market is broadly supportive.

Lauren 12:38 
Sure. But the distribution of spend and the checkout signals argue for caution into 26, widening bifurcation buy now, pay later creep into essentials and persistently weak expectations.

Lauren 13:08 
The consumer showed up and probably still, well, just a lot more carefully.

Brad 13:08 
Well, going against the US consumer has not been a good idea for a long time now, and I'm willing to still take the side that will hold up here. But you all have to be watching some of the signals that you mentioned to see that changes this year.

Brad 13:24 
Clients with access to Barclays Live can learn more, and our consumer ‘What Ifs for 2026’, where we dive deeper into the different consumer categories and our weekly macro series. Thanks for listening. Don't forget to subscribe so you never miss an episode. See you again! On The Flip Side.