With the American Dream out of reach for more and more Americans, many have begun spending like there's no tomorrow.

University of Michigan economist Joanne Hsu thinks stable employment and a dire outlook from consumers about the future lends support to spending in the US economy.

“Positive spending is not a reflection of some sort of internalized secret sense of confidence that consumers have...instead my interpretation is that consumers see that a lot of aspirational goals that we talk about as part of the American Dream," Dr. Hsu told CNBC in an interview.

"With high prices and high interest rates right now, those aspirational goals just feel increasingly out of reach"

With so many things Americans could have saved for a generation ago, today's consumers a choosing to spend money on smaller purchases because they are simply too pessimistic.

A tough outlook

Things don't look good according to consumers. The University of Michigan Survey of Consumers sentiment index in May fell to 67.4 based on initial estimates. It was 77.2 in April, and missed market expectations by a wide margin.

While the Federal Reserve doesn't count food and energy as inputs for its core inflation metric, the average consumer has to eat and buy gasoline. Rising food and energy prices have a big impact on consumers in the real world.

Housing prices are also ramping up. In the post-WW2 economy, saving for a home in the US was a big part of the American dream. Now, most consumers will never be able to own a home, so there is zero point in saving to buy one.

The rise in single-family home prices is partially a result of Wall St. entering the housing market as landlords. Blackstone and Pretium Partners are among the groups buying homes to rent, pushing up both rents and property values.

The end result?

Consumers are priced out of the housing market – and paying higher rents!

Labor numbers support spending

Consumers are staring into the abyss, but they still have strong incomes thanks to a solid labor market, according to Dr. Hsu. Labor market participation in the US still looks good, and this gives consumers the ability to spend.

Money that would have been saved for aspirational purchases like a home in previous generations is likely being spent into the economy by consumers directly.

The short-term takeaway is that as long as the labor market is still strong, consumers will spend.

On a longer timeline, a nation of renters is probably less resilient to economic shock. If there is a deterioration in the labor market, spending could take a big hit in near real time.

Inflation isn't eroding consumer spending in the short term, but it appears to be impacting long-term lifestyle goals.