Is Consumer Spending Still Propping Up the Economy?

Hello and welcome to this month’s market update for November 2025. My name is Steve Latham. I am the Chief Investment Officer for Bernicke Wealth Management. And in today’s market update, we are going to be talking about, yes, the consumer for the United States of America. We have a lot of data that’s been coming through over the last few months that’s suggesting that there’s some bifurcation happening amongst the income cohorts of consumers throughout the country.

Overview of Consumer Data

And one of the reasons why we really want to focus on this is because if you look at the top line data, so the stuff that just comes out, you read the headline and that’s it. It would suggest that the consumer is still relatively healthy. You don’t have very high default rates. Sentiment is declining, but it’s still in positive territory.

And generally speaking, things are okay at a high level. But when you dig down deeper and you lift up the hood and you start looking at the specifics of this data, that’s where things start to get a little unsound. So we want to dive into that today for you.

Income Cohorts and Consumer Spending

The first slide here is the percentage of spending that’s coming from different income cohorts of the consumer.

And what do I mean by income cohorts? Let’s define that real quick. It is the type of individual or the group of people that earn a specific range of money. So less than $50,000 a year, between $50,000 and $100,000 a year, over $100,000 a year. Those are different income cohorts. And so when we’re looking at the chart here in front of us, what we can see is the top 10% of income earners in the country are making up almost 50% of total consumer spending within the country, and this number has been steadily increasing since the early 90s.

Now, this in and of itself isn’t necessarily a big flashing red light. We’ve seen different income cohorts carry the brunt of consumer spending throughout the course of the last few decades, and so it isn’t anything demonstrably bad, but it’s one piece of data that suggests, well, let’s take a look at this a little bit closer.

Income Cohorts and Consumer Confidence

And when we do look at this and you look at it from a confidence perspective, you can start to see where cracks could start to form.

On the left chart here we see confidence sinking amongst lower income earners. And what you see since 2025: The yellow dots are those earning between $25,000 and $34,000 a year. The black dots are $35,000 and $49,000 a year. And then the gray dots, which only start getting recorded in data since 2025, include $200,000 and more a year.

And you can very clearly see that there’s a dispersion here. The lower income cohorts are feeling worse about consumer sentiment throughout the course of 2025, while those who are higher income earners are actually feeling pretty good, if not better, than what they were since the beginning of the year.

Another set of data shows effectively the same thing on this right hand chart.

The yellow line, which is kind of overshadowed by the pink line, is all respondents. And then anyone between $50,000 and $100,000 is the pink line. Under $50,000 is the blue line, and over $100,000 is the black line. And again, really since 2023, but especially in 2025, we see that the higher income earners, those earning above $100,000 a year, are feeling pretty good, if not better, than what they were since the beginning of the year.

The same cannot be said for the lower income earners, and there’s some pretty clear data to suggest why this is the case. It’s not necessarily just how they feel, whether it’s about jobs or the opportunity set in front of them. But of course, it’s about what they’re earning as well.

Consumer Earnings and Spending Growth

And so when we look at earning data from Bank of America, they put out a great consumer report card every month that’s publicly available.

Anyone could take a look at it. This earnings data starts to suggest reasons why consumer confidence may be falling in certain cohorts. On the left side here we see lower income cohorts in blue, the middle income cohort in red, and the higher in orange. And this is consumer spending growth year over year. And we can see that the lower income earners have effectively flatlined so far in 2025.

We’re seeing a little uptick in last month’s data, but still well below the average of what we’ve seen since the beginning of 2023.

This is at the same time where middle and higher income earners are seeing their consumer spending increase during the same period.

And again, we can reiterate this data with income growth. So how has household wage growth increased since the beginning of this period?

And that’s what’s on the right chart here where that orange line, the higher income earners, have actually seen their income growth accelerate since the beginning of 2023, whereas the lower income cohort has seen it decline substantially since the beginning of 2023. And so whenever you have fewer dollars coming in, or at least your income is not growing as much as what it used to just a few short years ago.

You can see how that can materialize in negative sentiment. And of course, if you have fewer dollars coming in, especially within a period of inflation like we’ve seen over the last few years, that can make discretionary spending, which really is the true engine behind economic growth for this country, fall off in the lower cohorts.

Luckily, the higher income cohort has been picking up the slack thus far, and we’re continuing to see growth economically so far since the beginning of the year. And we’re anticipating further growth in the third quarter once that data is released in the next few weeks.

So that was just a little bit of insight on the consumer thus far.

Looking Ahead and Consumer Behavior Risks

Some of the things that we’re really keeping an eye on, because it is critically important to take a microscopic lens to what the consumer is doing, to really understand the behavioral patterns and what the potential risks are going forward. If we see those higher income earners start to pull back on spending, that could have a disproportionate effect on the economy, because they are such a large percentage of spending.

Similarly, on the positive side, if we see those lower income earners start to spend more, that could also have a disproportionate impact positively on economic growth going forward. It’s difficult to determine where that could go from here, but it’s one of the things that we want to keep an eye on, amongst many other pieces of data that we’re always looking at.

If you have any other questions regarding the consumer, the markets, or anything else that we cover here financially, please don’t hesitate to reach out. We’re always happy to answer them for you. Thank you.