The U.S. consumer economy showed new signs of strength in July, but the benefits were not shared equally. according to Bank of America The latest report from the institute, Consumer Checkpoints: Harvest and GapHigh-income households are enjoying accelerated wage growth and increased spending, while low-income households face a slowdown in wage gains and flat spending, marking this gap in more than four years.
The institute’s research is based on aggregated and anonymous deposit and transaction data, indicating that after-tax wages for the lowest income skewed increased by 1.3% year-on-year (YOY), down from 1.6% in June. Instead, high-income wage growth accelerated to 3.2%, the third consecutive monthly increase.
The result is that the biggest gap between wage growth for the highest earners since February 2021 is a warning sign of the economy, although overall spending is strong. David Tinsley, senior economist at the Bank of America Institute, told wealth In an interview: “In a sense, our low-income wage growth has improved since the pandemic and has now reversed.”
Tinsley added that the pandemic was a “very unusual situation” and that wages for low-income families are indeed stronger than other areas of the economy.
“The narrowing of wealth inequality has narrowed, and is now expanding,” Tinsley said. But warned that it was “early,” but when he looked at what happened to higher and lower income Americans, “the disagreement was obvious.”
Overall consumer activity will increase
Tinsley highlighted the overall consumer picture “quite healthy”, and his team’s research on the latest data showed that total credit and debit card spending per household increased by 1.8% year-on-year in July, the fastest pace since January. According to seasonal adjustments, spending climbed 0.6% after June earnings of 0.4% (mom) (mom).
It is worth noting that the rebound is based on broad-based as service spending soared by 0.9%, the strongest growth since April 2024, which is the person who has declined for three consecutive months. Retail spending (excluding gasoline and restaurants) is also higher, although some elevators come from temporary factors such as extended “Prime Day”-style online promotions and late surges in back-to-school shopping.
Tinsley and his team warn that these boosts may go away. Some of the rises in July may reflect “buy” behavior related to the August 1 trading deadline as consumers try to avoid potential tariff-related price increases. Overall, temporary promotional peaks and inflation in tariffs complicated the situation. Retail transaction volumes grow more modestly than spending value, suggesting higher prices, rather than larger quantities may result in a portion of the increased price.
With the change of the labor market, the wage gap widens as the labor market changes. Recent Bureau of Labor Statistics revisions showed that wage growth dropped sharply in the second quarter, with the largest gradual decline in low-wage industries such as retail, wholesale, leisure and hospitality.
Bank of America deposit data shows that the number of low-income households receiving unemployment payments rose 4% year-on-year, while middle-income and high-income households rose 10%. This suggests that low-wage workers are not losing a lot of jobs, but are facing reduced working hours or heavy pay increases.
Now the difference is clear
Expenditure data reflects compensation trends. “Low-income households are not really spending,” Tinsley told wealthfound that their spending growth was flat in the three months ended July (0% year-on-year). High-income households rose 1.8% year-on-year, while middle-income households rose 1.0%.
While the lowest-income households account for less than 15% of total U.S. consumer spending, their purchases are critical for industries that depend on high transaction volumes, such as discount retail, fast service restaurants and budget travel. Importantly, internal data from Bank of America shows that the share of low-income spending dedicated to discretionary categories has barely changed since last year, suggesting that they have not yet resorted to cutting non-essentials, but their ability to cut in the future remains small.
There are no early signs of consumer trouble-However
A potentially reassuring takeaway is without a typical indicator of distress. Retail earnings are not up – the downward trend that began in 2022 is only flat, while deposit balances remain above 2019 levels even after adjusting for inflation, while credit card lending habits are still healthier than pre-pandemic health. But under these broad measures, there is a pressure to remind you that credit card utilization is increasing faster than other groups since 2019 in low-income households that do have monthly card balances.
Even though wages at the bottom are growing slowly, the institute concluded that overall, household finance is still “reasonable”. Continuous savings continue to improve, relatively low spinning credit usage, and stable borrowing capacity show that consumers still have spending firepower, which are key factors supporting economic resilience so far this year.
That said, the report notes that middle-income and high-income families are doing most of the heavy lifting.
As Tinsley’s team observed: “From a macroeconomic perspective, it is reassuring that spending growth for low- and middle-income households does not seem to be as weak as low-income households,” said household accounts with the lowest income of consumer spending in the U.S. The team still added: “Social economic concerns remain broader for any slowdown in wages and spending for low-income households.”
When asked wealth To expand these broader socio-economic issues, Tinsley said: “There is still some time to go before this really tells it.” He estimates that the economy will take at least a year or as many as 18 months, from truly reversing all the progress from the pandemic’s wealth inequality, but he says there is no doubt. The expanded wealth inequality “creates complexity,” Tinsley said.
Key July 2025 figures:
- Total card expenditure per household: +1.8% YoY (fastest since January)
- After-tax wage growth (lowest income): +1.3% year-on-year
- After-tax wage growth (highest income bisect): +3.2% year-on-year
- Card Expenditure (lowest Tercile): 0%
- Card Expenditure (highest Tercile): + Approximately 1.8%
- Service Expenditure: +0.9% of moms (largest since April 2024)
For this story, wealth Use the generated AI to help with the initial draft. The editor verified the accuracy of the information before publishing.