Middle-Income Purchasing Power and Its Implications for Consumer-Driven Sectors

In 2025, the economic landscape for middle-income households in the U.S. is defined by a delicate balance between resilience and vulnerability. The Primerica Household Budget Index (HBI) data for June 2025 reveals that purchasing power for families earning between $30,000 and $130,000 remains stable—hovering at 100.0%—but with a 0.1% monthly decline and a 3.1% annual inflation rate on essentials. This outpaces the broader Consumer Price Index (CPI) of 2.7%, underscoring the disproportionate burden of inflation on critical expenditures like food, utilities, and auto insurance. As middle-income households adapt through trade-down behaviors and delayed discretionary spending, the implications for consumer-driven sectors are profound.

Essential-Consumer Services: A Safe Harbor in a Storm

The essential-consumer services sector—encompassing packaged foods, household goods, and personal care—has emerged as a haven for investors seeking stability amid macroeconomic turbulence. These companies, often characterized by strong brand equity and recurring demand, are uniquely positioned to benefit from sustained middle-income spending pressures.

Campbell's (CPB), for instance, trades at a 50% discount to its fair value estimate, a reflection of its strategic pivot from traditional soup products to a diversified portfolio of snacks and plant-based offerings. With a forward dividend yield of 5.04% and a wide economic moat, Campbell's is leveraging innovation and cost-cutting ($250M in projected savings by 2028) to maintain relevance in a shifting market. Similarly, Kraft Heinz (KHC), trading at a 46% discount, has bolstered its resilience through efficiency gains and a focus on home-cooked meal demand, a trend accelerated by inflation-driven dining-out cost avoidance.

Clorox (CLX), another standout, trades at a 28% discount to fair value despite navigating supply chain disruptions and a 2023 cybersecurity incident. Its robust brand equity in disinfectants and household cleaners ensures steady demand, while investments in digital capabilities and margin recovery (projected to return to historical levels by year-end) reinforce its long-term appeal.

Defensive Financials: Anchors in a Shifting Tide

In parallel, defensive financials—providers of essential services like insurance, credit access, and money transfers—are gaining traction as middle-income households seek financial stability. These sectors, less sensitive to economic cycles, offer compelling value propositions in a high-inflation environment.

Western Union (WU), trading at a 48% discount to fair value, exemplifies this trend. As a leader in cross-border money transfers, the company caters to middle-income workers in emerging markets who rely on remittances. Despite digital competitors, Western Union's scale advantage and recent digital investments position it to retain market share. Its 10.66% forward dividend yield further enhances its appeal for income-focused investors.

U.S. Bancorp (USB), trading at a 13% discount, offers another compelling case. As a regional bank with a wide economic moat and a 4.32% forward dividend yield, it serves a large base of middle-income customers through affordable financial products. Its cost-efficient operations and emphasis on small business lending align with the needs of households navigating tighter budgets.

Strategic Implications for Investors

The convergence of inflationary tailwinds and middle-income spending pressures creates a unique opportunity for investors to capitalize on undervalued equities. Essential-consumer services and defensive financials, with their resilient business models and attractive valuations, offer a dual benefit: mitigating downside risk while capturing growth from sustained demand.

For example, Lamb Weston Holdings (LW), a 39% undervalued producer of frozen potato products, benefits from the restaurant sector's reliance on high-margin menu items like fries. Similarly, TransUnion (TRU), a leader in credit reporting, gains from middle-income households' need for affordable credit access, a critical lever during inflationary periods.

Conclusion: A Call for Prudent Allocation

As the economic environment evolves, investors must prioritize companies with strong fundamentals, pricing power, and alignment with middle-income spending dynamics. The essential-consumer services and defensive financials sectors, currently trading at significant discounts to fair value, present a compelling case for long-term, defensive investing. By allocating capital to these sectors, investors can hedge against inflationary risks while positioning themselves to benefit from the enduring resilience of middle-income households—a cornerstone of the U.S. economy.

In a world of uncertainty, the path to sustainable returns lies in identifying undervalued equities that not only survive but thrive amid the pressures of the present.