US economic data masks a growing crisis for low-income households

The long-awaited economic slowdown for the US economy has already begun for poorer Americans.

Higher-income consumers account for a large portion of the spending that remained resilient this summer, despite price increases related to tariffs and a slowdown in employment.

On the other hand, tensions are emerging beneath the surface for poorer Americans, which is seen as a sign that this could soon spread to broader sectors of the economy.

Retail sales increased by 0.5% in July, while the previous month’s shopping activity exceeded initial estimates (a 0.9% increase in June).

The data, which is not adjusted for inflation, was likely boosted by an increase in seasonal online sales, rising prices, and purchases made ahead of tariffs.

The “control group” included in GDP calculations (excluding volatile categories like building material stores, auto dealers, and gas stations) also saw a 0.5% increase, marking a solid start to the third quarter.

A separate indicator from Bank of America showed similarly strong spending last month, but this masked a slowdown among the poorest Americans.

Overall, per-household credit and debit card spending rose by 0.6% in July, reaching its highest level since January with a 1.8% year-over-year increase.

However, for the lowest-income group, with an annual income of approximately $50,000 or less, spending growth has come to a standstill.

According to a new study published this week by the Boston Fed, spending by the lowest-income group has shown only a moderate increase since 2022, while spending by those earning over $121,000 has continued to rise sharply.

This spending gap is also reflected in slower-growing wages for low-income groups, which reduces their purchasing power.

According to post-tax wage and salary data from the Bank of America (BofA) Institute, the wages of low-income households increased by only 1.3% in July compared to the same period last year, while the wages of high-income households grew by 3.2%.

For the lowest-income third, households with an annual income of approximately $50,000 or less, spending growth was 0.0%, according to BofA’s analysis of its internal credit and debit card spending data.

“It is noteworthy that employment growth has significantly lagged in some sectors with lower average hourly earnings, such as retail, wholesale, leisure, and hospitality,” the BofA Institute wrote in a note.

Wealthier Americans are more likely to benefit from the stock market boom, which has climbed to new highs despite concerns about an economic slowdown.

A Michigan University survey released today revealed that high-income consumers are “much more likely” to continue their spending as usual in the face of high inflation compared to low-income consumers.

For the low-income segment, there are more obstacles, including price pressures related to tariffs. This group spends a larger portion of its income on goods most affected by the White House’s trade policy.

According to a new analysis by the Congressional Budget Office, cuts to health programs and social services will cumulatively impoverish the lowest-income Americans even further over the next decade compared to the institution’s previous forecasts.

BofA’s analysis showed that in July, spending by high-income households increased by about 2% year-over-year, while spending by middle-income households grew by 1%.