How Wealthy Consumers Are Keeping Growth Afloat
As financial professionals, we often describe the U.S. economy as primarily driven by the consumer. Household spending accounts for nearly two-thirds of total economic activity, making it the cornerstone of both growth and resilience. Recent data, however, underscores an important nuance: not all consumers are contributing equally. The spending power of the wealthiest households is carrying a disproportionate share of activity—more so than at any point in recent decades. Recognizing this imbalance helps explain the economy’s current trajectory and its implications for investors in the months ahead.
The Top 10% and Their Outsized Impact
Households in the top 10% of the income distribution accounted for 49.2% of total consumer spending in the second quarter of this year, up from 48.5% the prior quarter—the highest share recorded since 1989. In other words, one-tenth of the population is now driving nearly half of all consumer activity.
For affluent households, elevated asset values—whether in equities, real estate, or other investments—have offset inflationary pressures. Many experienced notable net-worth gains during the post-pandemic recovery, enabling them to maintain discretionary spending even amid higher interest rates and tighter credit conditions. Demand for luxury travel, dining, and high-end goods remains resilient.
This concentration of spending has played a central role in preventing a broader economic slowdown. Despite slower hiring and job growth, consumer activity has not contracted sharply because wealthier households continue to spend and invest.
A Divergence Beneath the Surface
By contrast, the environment is more challenging for middle- and lower-income households. Rising debt delinquencies and persistent inflation are eroding their financial stability. Borrowing costs have surged, with credit card APRs and auto loan rates hovering near multi-decade highs. For many families, wages are not keeping pace with rising expenses for housing, healthcare, and everyday goods.
Recent payroll revisions revealed job growth over the past year was only about half as strong as initially reported. Additionally, unemployment among Black Americans has increased at the fastest pace since 2020, reaching 7.5%—double the rate for White Americans—reversing much of the progress made in narrowing the unemployment gap over the last three years.
Together, these dynamics illustrate a “two-track” economy: one group maintains a strong financial position, while another faces mounting pressures.
Why This Matters for the Economy
The resilience of higher-income consumers has helped stave off recession, but questions remain about how sustainable this trend is. If affluent households reduce spending due to declining portfolio values, market volatility, or cyclical shifts, the weakness among other groups could make overall growth far more vulnerable.
A consumer base so reliant on a single demographic also risks amplifying volatility across retail, housing, and equity markets. Luxury-focused companies may continue to perform well, even as mass-market retailers struggle. For policymakers, this imbalance underscores the limitations of monetary policy, which can affect households differently depending on their income and wealth levels.
Investment Implications
For investors, the current environment demands careful consideration. Several themes stand out:
Luxury and High-End Consumer Trends: Companies serving affluent households may remain relatively insulated from cyclical downturns. Premium travel, luxury goods, and boutique services continue to demonstrate resilience and may present opportunities. Resilience in premium segments is evident as certain luxury-oriented equities demonstrated notable performance during Q2 2025. For example, the RealReal stock returned 83% over the quarter, while some international luxury brands posted robust organic growth despite global demand softening. This divergence reflects the outsized impact of affluent consumers and can be seen in segment returns for leading luxury firms, though sector volatility remains.
Mass-Market Headwinds: Firms heavily reliant on middle- and lower-income consumers could face persistent challenges. Rising delinquencies and limited credit access warrant caution in sectors such as retail, quick-service dining, and mass-market apparel.
Credit and Banking Sensitivities: Increasing delinquencies pose risks to financial institutions with significant consumer-lending exposure. Regional banks and subprime lenders appear most vulnerable.
Equities vs. Fixed Income: Equity markets have largely mirrored high-income consumer resilience, with broad benchmarks such as the S&P 500 returning 10.9% and the MSCI ACWI index gaining 11.7% in Q2 2025. These returns illustrate the continued momentum in sectors that benefit from discretionary spending. Meanwhile, high-quality fixed income—such as the Bloomberg US Aggregate Bond Index—provided 1.2% for the quarter, with investment-grade corporate bonds and short-duration Treasurys delivering similarly positive but more modest gains. These results highlight how both asset classes have responded to elevated interest rates and selective consumer demand.
Long-Term Diversification: An economy so dependent on one consumer segment is not a sustainable foundation. Diversifying portfolios across sectors supported by long-term themes—such as technology, healthcare, and the energy transition—remains prudent.
What Clients Should Keep in Mind
For prospective investors, this environment reinforces the importance of long-term wealth building and prudent financial planning. The households currently driving economic resilience are those that have managed debt responsibly, built savings, and invested consistently over time.
For existing clients, vigilance is key. While the economy has exceeded expectations, underlying imbalances remain. Overreliance on affluent consumers does not guarantee stability. Maintaining diversification, ensuring adequate liquidity for near-term needs, and aligning risk tolerance with potential volatility are as essential now as ever.
Guidance Moving Forward
The U.S. economy continues to outperform recession forecasts, thanks largely to affluent households’ spending power. Yet the uneven distribution of consumer strength is creating vulnerabilities. For investors, this moment calls for balance: acknowledging the durability of high-income spending while preparing for risks tied to broader financial strain.
Recent performance benchmarks underscore the value of diversification and prudent rebalancing—especially in markets shaped by disparate consumer experiences. As always, this information is shared for educational purposes, without making specific product or strategy recommendations, and in compliance with SEC and FINRA guidelines
In such an environment, disciplined financial planning and thoughtful investment strategies are decisive. As your advisor, my priority is to help you navigate these dynamics, identify opportunities aligned with your goals, and safeguard against risks that may not be immediately visible in the headlines.