In August 2024, the US consumer market paints a picture of a bifurcated economy. On one side, higher-income households continue to show resilience and optimism, supported by solid job growth and rising asset values. On the other, lower-income consumers navigate a return to pre-pandemic norms.
Consumer Sentiment and Confidence
Consumer confidence has experienced a modest uplift recently. The Conference Board’s Consumer Confidence Index rose to 100.3 in July from 97.8 in June, reflecting a slight uplift in consumer expectations. Deloitte’s financial well-being index also reached a four-year high in June, driven largely by improvements in sentiment among higher-income Americans. Recently, 74% of higher-income respondents reported improved financial situations, a 12-point increase over the past year, highlighting the enduring financial strength of affluent consumers. However, among middle- and lower-income consumers, sentiment has remained largely unchanged, reflecting a shift back to normal spending patterns after the pandemic boom.
Spending and Income Trends
In June, consumer spending rose by 0.3%, building on the positive momentum from May’s 0.4% increase. July’s retail sales further surprised economists with a robust 1% increase, far exceeding expectations. This resilience is particularly evident among wealthier consumers, who continue to drive much of the discretionary spending, especially in areas like housing and leisure travel. Meanwhile, lower-income households are adjusting to the depletion of pandemic-era savings and the resumption of student loan payments by focusing more on essential expenditures. This shift reflects a natural return to pre-pandemic financial behavior, suggesting that concerns about their financial strain may be somewhat overstated.
At the same time, consumers are increasingly shifting their spending from goods to services, embracing a broader trend of prioritizing experiences. This shift is evident across various sectors, with more people opting for travel, dining out, and other experiences over traditional goods. However, higher-income households are the ones making up most of this services spending, bolstered by strong job and wage growth. It’s important to note that the impact of inflation varies across income levels. As lower-income households feel the pressure of rising prices for essentials, they are adjusting their spending habits to a more sustainable level. Although the economic divide in consumer behavior is becoming more pronounced, the adjustments seen among lower-income households are largely part of a broader return to normalcy.
Income and Wealth Effects
Personal income saw a modest 0.2% increase in June, supported by ongoing job growth and real wage gains, while the wealth effect—the phenomenon where rising asset prices fuel consumer spending—remains strong. Particularly among higher-income households, which have benefited significantly from rising equity valuations and real estate prices, net worth-to-disposable personal income ratios remain near all-time highs. This continued wealth effect is driving spending among affluent households that are enjoying substantial gains in asset values.
Return to Normalcy
As 2024 progresses, the outlook for the US consumer market remains largely optimistic. Lower-income households are adjusting to higher interest rates and inflation, reflecting a shift toward more sustainable spending habits. Meanwhile, wealthier consumers continue to show resilience, supported by strong job growth and rising asset values. The US consumer landscape is expected to maintain its bifurcated nature, where robust economic conditions bolster the higher end of the market, while the lower end gradually returns to pre-pandemic norms. Anticipated interest rate cuts are likely to ease financial pressures for those most affected, contributing to a more balanced and positive outlook for consumers across the board.
Written by: Kristopher Jones, CFA
