Consumer spending gains widen income gaps in July 2025

America’s consumer economy posted strong gains in July 2025, with total credit and debit card spending per household rising 1.8% year-over-year—the fastest pace since January of that year [1]. However, the benefits of this growth are not being evenly distributed, according to a report by the Bank of America Institute titled “Consumer Checkpoint: Gains and gaps.” The report, based on aggregated and anonymized deposit and transaction data, highlights a sharp divergence between higher- and lower-income households. Wage growth for the lowest-income tercile slowed to 1.3% year-over-year in July, down from 1.6% in June, while higher-income wage growth accelerated to 3.2%—its third consecutive monthly increase [1]. This marks the widest wage growth gap since February 2021.

David Tinsley, senior economist at the Bank of America Institute, noted that the narrowing of wealth inequality seen in the post-pandemic period appears to be reversing. “In some sense, we had an improvement in lower-income wage growth since the pandemic and now that’s gone into reverse,” he said [1]. The economist emphasized that the labor market’s recent shifts—particularly in low-wage industries such as retail, wholesale, leisure, and hospitality—have played a role in this divergence. Revised Bureau of Labor Statistics data shows a significant slowdown in payroll growth in the second quarter of 2025, with the most pronounced declines in these sectors [1].

Spending patterns reflect this wage gap. Lower-income households saw flat spending growth (0% year-over-year) in the three months to July, while higher-income households experienced 1.8% year-over-year growth [1]. Middle-income households posted a 1.0% increase. This trend raises concerns for industries reliant on high-volume spending, such as discount retail, quick-service restaurants, and budget travel, as the lowest-income 30% of households account for less than 15% of total U.S. consumer spending [1].

While there are currently no signs of widespread consumer distress—such as rising retail returns or falling deposit balances—early indicators suggest strain. Credit card utilization rates for lower-income households carrying month-to-month balances have increased faster than in other groups since 2019 [1]. Nevertheless, overall household finances remain “sound,” supported by elevated savings levels, low revolving credit usage, and stable borrowing capacity [1].

Tinsley warned, however, that the growing inequality “creates complexities going forward,” and that the economy is likely at least a year—possibly up to 18 months—away from fully reversing the progress made on wealth inequality post-pandemic [1]. The report underscores the importance of middle- and higher-income households in sustaining economic resilience, as their spending growth has not weakened as it has for lower-income groups [1].

Sources:

[1] title: The gap between higher and lower-income households is widening as inequality progress since pandemic has ‘gone into reverse,’ BofA economist says

url: https://fortune.com/2025/08/13/growing-gap-between-higher-income-lower-income-rich-poor-americans-wages-spending/