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Despite the Federal Reserve restricting the economy; a new, protectionist trade regime; and seemingly never-ending uncertainty, the American consumer is still powering through it.
At several key moments over the past year, as sentiment flagged and talk of a coming slowdown grew louder, spending data acted like a jolt of energy, a slap in the face of pessimistic readings of the economic outlook.
But viewing the resilience of the American consumer through the lens of a K-shaped economy, observing the sharp divergence between top earners and the rest of the population, helps explain why those things can be happening at the same time.
This week will deliver more insight into the strength of the consumer via scouting reports from the other side of the cash register.
Retail giants Home Depot (HD), Lowe’s (LOW), Target (TGT), and Walmart (WMT) are reporting earnings and outlooks, helping shed light on the impacts of tariffs and how households are coping with pricing pressures. Areas of growth or stagnation will also hold importance, as the shopping dynamics of putting off purchases, bargain hunting, and trading down can signal how consumers are interpreting and reacting to their own financial standing.
Even when spending in aggregate increases, drilling down into who and where the boosts are coming from and going to can be revealing. Total credit and debit card spending per household increased nearly 2% in July, compared to a year ago, according to a new report from the Bank of America Institute. But, while that figure looks encouraging, the report noted that a widening gap has opened up between lower-income households and higher-income cohorts and “is the largest since February 2021.”
Results in other sectors have already shown elements of unbothered consumption on the one hand and more cautious spending on the other. Airlines, for instance, showcased a tidy contrast between affluent consumers and everyone else. At Delta (DAL), premium ticket sales rose 5%, while main cabin revenue fell 5% last quarter, underscoring the economic split.
A paper published last week by the Boston Fed, examining the resilience of consumer spending since 2022, supports the K-shaped framing.
“Credit card data indicate that since 2022, spending by higher-income consumers has remained resilient and has been driving growth in aggregate spending,” the paper found. “By contrast, spending growth of low-income consumers has not been as strong.”
Retailers will tell us more. The engine room of the nation’s GDP has been humming along. But it’s worth pinpointing where all that resilience is coming from.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.
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