Bank of America finds spending gap between income groups widening in U.S.

The United States is showing signs of A “K” economy with spending by low-income consumers showing slow growth compared to that of their higher-income counterparts, a new analysis from the Bank of America Institute shows.

Internal data detailed in the report showed that in November, the three-month average of total card spending reflected a K-shaped trend as the holiday season began in earnest.

“In terms of overall credit and debit card spending, we’ve really seen a divergence open up since the spring, early summer in our data,” David Tinsley, senior economist at the Bank of America Institute, told FOX Business in an interview.

“Currently, higher-income households – that is, the top third of households in terms of income – have seen their spending grow by around 2.6% year-on-year, but forlow-income householdsit’s only 0.6%,” Tinsley noted. “That’s a pretty significant gap.”

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“I think there are sort of two parts to this story. One is the labor market: when you look at the salaries going into people’s bank accounts in our country, Bank of America “So on the income side, the K-shape is also very apparent.”

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“The other leg, in a sense, is wealth, stock market gains“, which Tinsley says primarily benefit middle- and upper-income households who typically hold these stocks.

“As the market has been relatively strong over the last two or three years, it really tends to support consumer spending among higher-income households,” he added.

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Labor market trends are likely a key driver of the K-shaped dynamics seen among consumers, the report notes.

Salary after tax and wage growth for lower-income households remained lower than that for higher-income households, while the deceleration in wage growth for lower-income households that prevailed in the spring and summer appeared to stabilize in November, the Bank of America Institute reported.

The K-shaped trend affecting consumers across income groups was also seen in the company’s data covering spending on vacation items.

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The Bank of America Institute found that while low-income households had relatively healthy spending growth, they still lagged behind middle- and high-income households, and the report noted that the low-income cohort had the slowest growth. vacation expenses growth in the week leading up to Cyber ​​Monday.

The report also found that consumers are price sensitive during the holiday season and spending growth appears to have been driven by a greater number of transactions, with average spending per transaction changing little. For online holiday shoppingtransactions increased by around 10% while the amount spent increased by around 9%.

“People seem to be doing a pretty good job of avoiding or mitigating price increases due to things like tariffs. What we’re seeing is that the volume of goods they’re buying in terms of holiday spending is roughly equivalent to the dollars they’re spending,” he explained.

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“They seem to be making good use of the Internet, being very price sensitive. They’re making a lot of money out of their money,” Tinsley added.