Target Throws in the Towel: What Falling Consumer Incomes Tell Us the Fed Won’t

Target just announced it’s slashing prices on more than 3,000 products — apparel, home goods, daily essentials — and the move has almost nothing to do with tariffs or inflation. It has everything to do with a labor market that has quietly been deteriorating for years, finally becoming impossible to ignore. If you want to understand why Americans are canceling vacations, skipping dinner out, and choosing Walmart over Target, you need to look at what’s happening to incomes. The data is ugly, and it’s been ugly for a while.

Target’s Failed Bet on Jay Powell’s “Strong Economy”

For roughly three years, Target watched its sales decline. Why? Because it did what many large retailers did: it raised prices, then waited for consumers to catch up as the economy “recovered.” The Federal Reserve kept insisting the labor market was strong and the economy was resilient. Target believed it.

Walmart didn’t. Walmart kept prices low, and shoppers flooded in. Target lost them, and is now scrambling to win them back with a turnaround strategy under its new CEO — one that includes billions in store remodels and, critically, much lower price tags.

The lesson is straightforward: if you raise prices betting that consumer incomes will grow to meet them, and those incomes never grow, your customers are gone. They don’t come back at the same price levels. Target is learning this the hard way.

The Income Data That Should Alarm Everyone

The Bureau of Economic Analysis (BEA) — the same government agency that calculates GDP (Gross Domestic Product, the total value of everything an economy produces) — releases monthly data on personal income and spending. The February 2026 numbers are deeply concerning.

Total nominal income (all income from every source, not adjusted for price changes) posted a small but rare monthly contraction. Monthly contractions in this series have only happened twice since 2021 — this February and last May. That alone tells you the weakness isn’t new, and it didn’t “go away” as many mainstream economists predicted.

Once you adjust for price changes and taxes, the picture gets worse. Real disposable personal income (DPI) — what people actually have left to spend after inflation eats into their paycheck and the government takes its cut — fell by 0.45% in February compared to January, with per-capita real DPI dropping from $53,083 to $52,837 (FRED). January had looked decent only because Social Security cost-of-living adjustments hit at the start of the year, a one-time calendar boost. Strip that out, and over the past six months, real DPI grew just 0.13% in total. That’s six months of essentially nothing.

Private Incomes Are Actually Shrinking

Here’s where it gets even starker. When you exclude transfer payments (government payments like Social Security and unemployment benefits) and look only at income generated by private-sector work, real private income has been flat or negative for seven straight months. The six-month change through February: minus 0.13%. Negative real private income over half a year. That’s not a blip. That’s a trend.

This validates what the labor market data has been showing — not catastrophic mass layoffs, but a slow, grinding deterioration in hiring and job quality that has steadily compressed what workers take home.

Spending Is Following Income Down

PCE (Personal Consumption Expenditures) — the broadest measure of what Americans spend on both goods and services — confirms the story. Real spending growth (adjusted for prices) was barely positive in February, essentially zero in January and December. Over six months, real spending grew just 0.62%. The only comparable stretches of weakness since the pandemic lockdowns were the first half of 2025 and late 2022, which itself followed an oil shock.

Retail sales track primarily goods. PCE tracks everything — including services like restaurant meals, travel, and entertainment. Services are the majority of consumer spending, and that’s exactly where the pullback is showing up most visibly. McDonald’s noticed. Pepsi noticed and started cutting Doritos prices. Now Target is cutting thousands more.

The Oil Shock Is the Last Straw, Not the Cause

A spike in energy prices triggered by escalating Middle East conflict has piled on top of already-fragile consumer finances. But here’s a critical distinction Jeff Snider hammers consistently: this is not inflation. Rising gasoline prices don’t create broad-based inflation when incomes aren’t growing.

Instead, they force a choice. Consumers with flat or falling real incomes who now pay more at the pump have to cut spending somewhere else. Survey data from analytics firm Numerator tells the story directly:

• 61% of drivers say rising gas prices have moderately or significantly impacted their ability to afford other expenses.
• 73% report cutting back on dining out, travel, and entertainment as a result.
• 47% are worried about affording gas in the coming months.
• 86% say they’ll pull spending from other categories if prices rise further.

This is the economic mechanism: gas goes up, restaurants and retailers feel the squeeze, but broader inflation doesn’t take hold because consumers don’t have the income to sustain higher prices across the board. Some prices actually fall. Net result: people struggle, quality of life degrades, and anger builds.

Consumers Understand Economics Better Than the Fed

The New York Fed’s March Survey of Consumer Expectations delivers perhaps the most striking finding of all. Even as consumers widely expect gasoline prices to rise sharply, their one-year and three-year inflation expectations barely moved. They’re not expecting an inflation spiral. They’re not falling for the 1970s narrative.

What they are expecting: more job losses. Expectations for higher unemployment jumped sharply, while “job-finding” optimism sits near record lows. Perceptions of households’ current financial situations deteriorated versus a year ago. Year-ahead financial expectations hit their worst level since April 2025.

In other words, ordinary Americans have correctly diagnosed the problem as a jobs and income problem, not an inflation problem. Central bankers theorize that higher oil prices create inflation expectations, which then create actual inflation — a self-fulfilling prophecy. But consumers aren’t buying it, literally or figuratively. They know they’re not getting raises. They know the jobs aren’t there.

What Comes Next

The flat, grinding deterioration in labor markets — what Snider calls “flat beverage” job dynamics, referencing the yield curve flattening that signals economic weakness — isn’t reversing. March’s payroll report doesn’t erase years of downward revisions and persistent weakness. Energy prices haven’t stabilized. And the credit market (the system of loans and debt that businesses and consumers rely on to function) is already showing cracks, with what Snider describes as “shadow bank runs” — stress inside the eurodollar system (US dollars held and traded in banks outside the United States), the offshore plumbing that funds global credit — becoming increasingly visible.

Target’s price cuts are a corporate admission that the Fed’s story of a resilient economy was fiction. Consumers figured it out years ago. Now retailers are catching up. The stock market, still priced for a boom that never arrived, may be the last to learn.

The Eurodollar System’s Fingerprints Are Everywhere

The eurodollar system doesn’t create jobs directly — but its contraction tightens the credit conditions that businesses rely on to hire and invest. When offshore dollar funding dries up, global trade slows, corporate margins shrink, and hiring freezes. That’s the quiet force behind “flat beverage” labor markets that mainstream economists keep expecting to bounce back, only to be surprised when they don’t. Target’s towel isn’t just a retail story. It’s a signal from the real economy that the eurodollar system’s slow unraveling has consequences that eventually land on every shopping cart.

Sources

1. New Target CEO slashes prices on more than 3,000 products — Reuters
2. Real Disposable Personal Income: Per Capita (A229RX0) — FRED, St. Louis Fed
3. Original source: Jeff Snider — YouTube