The news: The challenges facing US consumers continue to mount, which is likely to set up a tough holiday season.

Prices are rising. The US consumer price index rose 3.4% YoY in July. While that was down a tick from June, prices continued to rise across a range of grocery staples including fresh fruit (up 1.1% MoM), household paper products (0.9%), and milk (0.5%), as did rental cars (2.8%), cell phone service (0.6%), and natural gas (0.5%), per the US Bureau of Labor Statistics (BLS).

Wages aren’t keeping up. Real average hourly earnings fell 0.2% YoY in July, as inflation wiped out wage gains in each of the past four months, per another BLS report.

Consumers don’t expect relief anytime soon. Median inflation expectations remain well above the US Federal Reserve’s 2.0% target, at 3.6% over the next year, per The Federal Reserve Bank of New York’s Center for Microeconomic Data.

High prices are a source of stress. Nearly 40% of consumers in July cited inflation as the biggest issue facing the country, per Numerator. Rising prices have been the most-cited issue in all but one month this year and have hovered around 40% for the past three months.

Some consumers are increasingly relying on debt to make ends meet. Credit card balances rose to $1.26 trillion in Q2, up 1.7% from the previous quarter, per the New York Fed. More concerning, the share of balances in late-stage delinquency, meaning more than 90 days past due, rose to 12.8%, up from 7.6%. Meanwhile, nearly half (47%) of buy now, pay later users say they’ve paid late on a BNPL loan in the past year, up from 41% a year ago, per LendingTree.

Why it matters: October, which has emerged as the unofficial start of the holiday season thanks to events like Amazon’s Big Deal Days, is only 50 days away, and the economic trend lines are pointing in the wrong direction. That helps explain why we expect holiday sales growth to trail the pace recorded during the first 10 months of the year.

• We expect total holiday sales to grow 4.1% YoY, 20 basis points below the 2026 full-year average.