A Mixed Bag of Consumer Spending

Briefly, this is a report pre-October when Tru_p’s tariffs were having a bigger impact on the economy than earlier months. Gasoline was up and now it is down in the West. Supposedly a refinery will be closing which initially will have an impact until things smooth out. Income is still skewed to the upper bracket with little and lower segments seeing far less increases. Wealth spends more.

Consumer Checkpoint: The tale of two wallets, Bank of America

Some Key Points to Acknowledge

• Total credit and debit card spending per household increased 2.0% year-over-year (YoY) in September, compared to 1.7% YoY in August, according to Bank of America aggregated card data. Seasonally adjusted (SA) spending growth per household rose 0.2% month-over-month (MoM), fourth straight monthly gain.

• Lower-income households showed some spending recovery, but growth remains muted compared to middle- and higher-income groups, likely due to softer wage gains in this cohort.

• Middle- and higher-income households have stronger wage growth, but higher-income spending is likely also benefiting from wealth effects. The discretionary spending of the top 5% of households by income tends to widen compared to the middle-income cohort when the S&P 500 is rising.

• Housing wealth plays a supporting role and is spread across the income distribution more proportionately. However, the overall impact on consumer spending is likely limited.

The upturn in consumer spending continued into September

In September, services and gasoline spending rose and contributed to the overall monthly gain. Within services, there was a small decline in restaurant spending (down 0.1% MoM) and a larger drop in airline spending (down 1.0% MoM), with a rise in lodging (up 0.2% MoM). Overall, there has been a steady rebound in YoY discretionary services spending growth after a wobble in the spring (Exhibit 2).

Retail reversal

Retail spending (ex-gasoline and restaurants), on the other hand, declined 0.5% MoM in September. This might seem surprising given some areas of goods spending are more exposed to price rises from tariffs – potentially pushing up the amount spent on them even if the volume of goods didn’t change. Exhibit 3 shows that over the July-September period, the change in the number of transactions in some categories of spending on certain tariff-exposed goods such as furniture was weaker than the change in the amount spent on them, suggesting some upward price pressures beneath the surface. Still, this remains fairly modest so far. One reason for this modest impact is likely that retailers have not passed the full impact of tariffs through onto consumers. Another could be that consumers are being more selective in their purchases when they see price rises or more selective in how they choose to spend their money. For example, when we look at spending on “durables” (e.g., electronics, autos, furniture, and building materials) we find that over the last year, consumers across generations actually tended to favor premium goods rather than value ones (Exhibit 4). So, they may have some scope to throttle back on these premium purchases and thereby offset some tariff impacts.

Divergences continue across income distribution

Lower-income weakness
The story of a wide divergence in spending growth between lower-income households and other cohorts remains, though the gap did not widen further. In September, the YoY spending growth of the lowest-income households was 0.6%, while that of middle- and higher-income households was 1.6% and 2.6%, respectively (Exhibit 5). Looking at lower-income households in more detail, we find that all generations, aside from Gen Z, have seen a softening in their spending growth over 2025 (Exhibit 6), however the rate of growth is weakest for Millennial and Gen X households.

It is likely, in our view, that younger generations’ spending will be particularly sensitive to changes in their wages as they have relatively lower assets to ride out fluctuations in income. Exhibit 7 shows that, while in September lower-income households across all generations saw an uptick in their after-tax wage and salary growth, it is small relative to the overall decline that has occurred over 2025.

Will higher-income spending fade?

Wages provide support
One clear reason for optimism here is wage and salary growth, where Bank of America data shows little sign of a slowdown for either middle- or higher-income households. In September, the after-tax wage growth for middle – income households was 2.4% YoY, 0.2pp (percentage points) above its average since January 2024 (Exhibit 8). For higher-income cohorts, the situation is even more favorable: in September, after-tax wage growth was 4.0% YoY, higher than the 2.5% YoY average since January 2024, and the highest rate of growth since October 2021.

Rising financial assets are also helping
But wages aside, middle- and higher-income spending growth likely also benefits from “wealth” effects. This is particularly relevant for higher-income households to whom the distribution of wealth is heavily skewed: in Q2 2025, the top 20% of earners accounted for over two-thirds of net wealth (financial and nonfinancial assets less debt) (Exhibit 9). This skewed distribution is especially true for equities. In Q2 2025, the Distributional Financial Accounts from the Federal Reserve indicated the average household in the top 20% income bracket directly held (outside of pensions) around $1.6 million in corporate equities and mutual fund shares, more than 10x the $130,000 for the next 20% (Exhibit 10). Even within the top 20% of earners these holdings are skewed – the top 1% held an average of $24.6 million, while the remaining 19% held an average of $960,000.

Given the S&P 500 index was up around 15% YoY in Q3 2025, many of the top earners are seeing large gains in their equity holdings. These gains are likely bigger in cash terms than the pay raises for these households and have probably played an important role in supporting their spending.

One way to illustrate the impact of these wealth effects in Bank of America data is to look at the difference in discretionary spending growth between the top 5% of households and middle-income peers. The idea here is that the top 5% will likely have considerably more financial assets than the middle-income cohort and should be more sensitive to fluctuations in wealth.

Indeed, Exhibit 11 shows that this difference has been fairly closely related to the growth in the S&P 500 since 2020. This suggests that spending for the high-income cohort should remain supported by wealth, absent a correction in equity markets.

Housing equity is likely less of a driver, but HELOCs may come more into play
On top of financial assets, housing wealth is also relatively skewed (Exhibit 12), but not quite as much as for equities. In Q2 2025, the top 20% of households by income held around $770,000 in home equity, about 3.5x the $220,000 held for the next 20%.

Economy, Consumer Checkpoint: The tale of two wallets