There's a question buried in this week's data that I don't think the market has answered yet: if consumers are this pessimistic, why are they spending more?
Michigan sentiment sits at 57.3. The Conference Board's expectations index just fell to 65.1, below the threshold tied to recession. But Walmart reported 4.6% comp growth this morning. The Redbook Index went up to 7.2% year-over-year. Bank of America card spending rose 2.6% in January, the biggest annual gain since 2024.
I've been watching this gap widen for weeks. This week, the data is finally specific enough to explain why it exists - and the answer matters for how you evaluate retail markets right now.
Michigan Consumer Sentiment
57.3
Preliminary February 2026
Conference Board Expectations
65.1
Below recession threshold
Same Week
Redbook Index (YoY)
+7.2%
Strongest reading in months
Walmart Comp Sales (Q4)
+4.6%
15th straight quarter of double-digit e-com
BofA Card Spending (Jan)
+2.6%
Biggest annual gain since Feb 2024
The signal: If current spending strength is tariff-driven front-loading, the back half of 2026 could look very different. Watch where the money flows, not just whether it flows.
ECONOMIC PULSE (Week of Feb 19, 2026)
CPI (January): +2.4% YoY, down from 2.7% in December. Core at +2.5%. Food inflation +2.9%, shelter still the largest monthly contributor.
Jobs (January): 130,000 payrolls added, beating 55,000 estimate. Unemployment at 4.3%. But retail trade added only ~1,000 jobs.
JOLTS (December): Job openings fell to 6.5 million (3.9% rate), lowest since 2017 outside the pandemic. Retail openings dropped 195,000.
Tariff Burden: Tax Foundation estimates a 13.5% weighted average applied tariff rate on all imports as of February 6, the highest effective rate since 1946. Yale Budget Lab projects per-household tariff costs of $1,300 in 2026.
Sources: BLS, Tax Foundation, Yale Budget Lab
The Spending Split
Walmart's Q4 earnings landed this morning. U.S. comp sales went up 4.6% excluding fuel. E-commerce jumped 27% to a record 23% of U.S. sales, and total revenue hit $190.7 billion. Store-fulfilled deliveries grew roughly 50%. Even Walmart Connect, their ad arm, grew 41%.
But read the fine print. Net income dropped 19.4% to $4.2 billion. CFO John David Rainey flagged "some pressure on the lowest income cohort." And their FY2027 guidance of 3.5-4.5% net sales growth came in below what analysts expected. Walmart is winning. But is it winning because consumers are healthy, or because they're trading down into value?
The broader data points to trading down. Bank of America's January Consumer Checkpoint shows card spending up 2.6% year-over-year, the biggest gain since February 2024. But here's the catch: the gap between higher-income and lower-income spending growth is now the widest since mid-2022. Wealthier shoppers are pulling the average up, while lower-income households are pulling back.
Break it down by category and you see the same thing. NRF's January Retail Monitor has total retail sales up 5.72% year-over-year, the fourth straight monthly gain. Online went up 30.49%, but building and garden fell 6.26%, the steepest drop across categories. The total looks healthy. The breakdown shows who's actually spending, and on what.
The pattern is consistent. Consumers are spending, but they're doing it selectively. Essentials (groceries, household basics) hold, while discretionary (clothing, home improvement, electronics) goes down. Higher-income shoppers pull the average up; everyone else feels squeezed.
I'd call this hollow growth - the top-line number looks solid, but the composition underneath has shifted. The shell of spending is intact. What's inside it has changed.
What this means: Tenants in essential and value categories are seeing real demand growth. Discretionary and mid-market tenants are feeling the pressure that sentiment data has been pointing to for months. Site selection models that weight total trade area spending without adjusting for income mix are going to miss this split.
Where the Dollars Landed
Private label and format migration. Those are the two places the money went.
First, private label. Store brands hit all-time highs at 21.3% of every dollar spent and 23.5% of every item sold, per PLMA data through December 2025. Nearly one in four products leaving a grocery store is now a store brand. Private label dollar sales grew 4.4%, versus national brand growth of just 1.1%.
The behavior behind those numbers is just as telling. 62% of shoppers now pick based on price over brand, up from 56% the prior year. The average consumer shops 3.1 grocery stores per month, up 8% year-over-year, hunting deals across more locations. And 88% of private label buyers plan to keep buying store brands or buy more in 2026. This looks like a permanent shift in buying behavior.
That same price sensitivity is changing where people shop, not just what they buy. Dunnhumby's Consumer Trends Tracker puts it at 79% of U.S. shoppers now buying groceries at mass retailers like Walmart and Target. That matches traditional supermarkets for the first time. Walmart's grocery share hit a record 72%, and dollar stores are gaining too.
Sales Growth Comparison
4x growth differential
Shoppers: Price Over Brand
62%
Up from 56% prior year
Stores Shopped / Month
3.1
+8% YoY
Plan to Keep Buying
88%
Structural, not seasonal
The signal: Mass retailers hit 79% grocery penetration, matching supermarkets for the first time. Grocery-anchored center competitive dynamics have fundamentally changed.
None of this is seasonal. When 62% of shoppers pick on price and they're hitting an extra store each month to find better deals, where the money flows has changed. Brand loyalty is losing to price comparison across 3.1 stores per month.
What this means: Grocery-anchored centers face a different competitive picture than 18 months ago. Mass retailers aren't next to the grocery business anymore. They are the grocery business for a growing share of households. If your trade area analysis still treats Walmart and traditional supermarkets as separate categories, the model needs updating. The 3.1 stores per month number also means foot traffic is spreading across more locations, which makes single-site traffic projections harder.
The Tariff Tax on Retail Prices
January CPI came in at 2.4% year-over-year, down from 2.7% in December. The tariff math underneath is worth examining.
Harvard's Pricing Lab estimates tariffs have pushed retail prices about 4.9 points higher than they'd be without them. Imported goods are up 6.0 points, domestic goods up 4.3 points (because domestic producers raise prices when import competition gets more expensive). Look at the hardest-hit categories. Apparel: up 8.99 points above trend. Coffee and tea: 7.5. Furniture: 6.5. Tax Foundation puts the weighted average tariff rate at 13.5% on all imports as of early February, the highest effective rate since 1946.
$1,300
projected per-household tariff cost in 2026
Yale Budget Lab estimate
13.5%
weighted average applied tariff rate
Highest effective rate since 1946
Hardest Hit Categories
Percentage points above pre-tariff price trend
Headline CPI (Jan)
2.4%
Down from 2.7% in December
Tariff Price Impact
+4.9pp
Above pre-tariff trend (all retail)
Gasoline (Offset)
-7.5%
YoY, masking underlying pressure
The signal: Apparel prices nearly 9 points above trend explain why it was the weakest NRF retail category this month. Retailers with heavy import exposure face continued margin compression through 2026.
Why does official inflation (CPI at 2.4%) look so much lower than the tariff impact (4.9 points above trend)? Three reasons. Retailers are eating some of the cost to stay competitive. The price bumps are hitting shelves slowly, not all at once. And year-over-year comparisons look better than they are because last year's prices were already high.
But look at the grocery bill. CNBC's CPI breakdown has beef up 16.4% year-over-year and coffee up roughly 18%. Gas is down 7.5%, which pulls the overall CPI down and makes it look tamer than the shopping cart feels.
This connects back to the hollow growth pattern. When consumers expect prices to rise, they buy now. Some of the strength in the Redbook Index (7.2%) and Walmart's comp growth likely reflects consumers pulling purchases forward rather than genuine confidence.
What this means: If spending right now is partly people buying ahead of price hikes, the back half of 2026 will look different than the front half. Retailers heavy on imports (apparel, furniture, electronics) face continued margin squeeze as costs go up faster than they can raise prices. Apparel is already showing it: prices up nearly 9 points above trend, and the weakest category in this month's NRF retail monitor. Worth watching in tenant health reviews.
Format Scoreboard
Dutch Bros plans 181 new locations in 2026. Coresight's year-to-date store closures just crossed 2,000. The format split is widening.
Expanding: IKEA announced 10 new U.S. stores for 2026. Dutch Bros is coming off a record 2025: revenue hit $1.64 billion (+28%), same-store sales grew 7.7%, and they now run 1,136 shops across 25 states. Grocery Outlet made its Virginia debut, pushing its discount grocery footprint into a new state. Then there's Amazon, which proposed a second 225,000 square foot superstore outside Chicago: half groceries, half fulfillment. That's bigger than a typical Walmart Supercenter.
Contracting: Di Bruno Bros. closed three Philadelphia-area specialty grocery stores to preserve "long-term brand sustainability." The closure pace is concentrated in specialty and mid-market formats while openings skew discount and value.
Look at the Dutch Bros numbers. Revenue up 28%, same-store sales up 7.7%, transaction count up 5.4%. That tells you something: the brand is bringing in new customers, not just raising prices. Compare that to Restaurant Brands International's Q4 results: Burger King U.S. comps at +2.6%, Popeyes U.S. full-year comps down 3.2%. Beverage-led formats with loyalty programs are beating food-focused QSR right now.
What this means: The expansion pipeline leans hard toward value grocery (Grocery Outlet, Aldi) and beverage-led QSR (Dutch Bros). Amazon's hybrid grocery-fulfillment superstore is a wild card. If you're sizing up incoming tenant demand, these are the formats with funded growth plans and unit economics that work. The Amazon concept at 225,000+ square feet with grocery and fulfillment under one roof is a new variable for suburban trade areas around Chicago and likely beyond.
The AI Spending Gap
68% of retail executives plan to deploy agentic AI within 12-24 months, per Deloitte's 2026 Retail Outlook. 81% think generative AI will weaken brand loyalty by 2027. A lot of this spending is defensive.
But here's the other side. Among international firms where 70% already use some form of AI, 80% of executives report no noticeable effect on employment or productivity over the past three years. Projected gains: 1.4% productivity improvement. 0.8% output growth. Billions spent, single-digit percentage points expected.
My opinion: They're measuring the wrong thing. The underlying study surveyed 6,000 executives across the U.S., UK, Germany, and Australia. AI adoption in Europe looks nothing like it does here. Regulation is years ahead of implementation, and Europe is barely in the race. Putting those markets in the same bucket hides what's actually happening in the U.S.
Even within the U.S., it's about how bad most companies are at adopting new tools. They're bolting it onto existing workflows and measuring the same KPIs they always have. The ones getting real leverage are restructuring around it - doing more with fewer people, moving faster on decisions that used to take committees. That kind of gap doesn't shows up in operating costs 18 months from now.
Look at where retail is starting. Nordstrom is using AI to track procurement spend and speed up sourcing. Walmart says 65% of stores will be served by automation by year-end. That's back-of-house.
But customer-facing AI is already working too. Wendy's FreshAI handles drive-thru orders at 160+ locations, 22 seconds faster than the regional average. Taco Bell has voice AI in 500+ U.S. drive-thrus. McDonald's tried the same concept with IBM and killed the program after viral ordering fails. Same technology. Different implementation. Different result. The companies figuring this out are building an advantage that compounds.
What this means: The 80% "no noticeable impact" number is a measure of how companies adopt tools, not a measure of the tools. The few that actually know how to use AI are early to the show, and that gap will widen before it narrows. When you're looking at a tenant's operating costs, the question isn't whether they're investing in AI. It's whether they know how to use it.
Looking Ahead
The hollow growth pattern connects every section this week. When consumers are pessimistic but spending, the explanation usually comes down to one of three things: spending down savings, leaning on credit, or buying now before prices go up. The Yale Budget Lab tariff estimates, combined with the Redbook acceleration and Walmart's strong comp growth, suggest the third explanation is doing most of the work right now.
That shows up clearly in who's expanding and who's not. Value grocery and discount are growing, while mid-market apparel and specialty are contracting. Beverage-led QSR (Dutch Bros) is growing at a pace that makes most food-focused chains look stagnant. The tenant pipeline for 2026 is split cleanly in two.
The Conference Board's February data (due February 24) and the final Michigan Sentiment reading (February 20) will add more detail to this picture. But the most useful data points for site selection right now are income distribution granularity and format-level performance - not headline spending totals.