Consumer hanging in there

Stephen Stanley | November 14, 2025

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.

Just as with the labor market, there has been a tremendous amount of negative chatter surrounding the state of the consumer absent the government economic data we typically rely on. One private source of information on household finances and consumer expenditures that I have followed for several years suggests, perhaps surprisingly to some, that consumer spending has continued to grow in September and October.

Bank of America institute

Over the past few years, I have cited data from the Bank of America Institute regarding the consumer several times.  This analysis relies on the vast database of bank account and credit and debit card information from Bank of America customers to gauge trends for the consumer.  Absent government retail sales or consumer spending data for September or October, this alternative data source offers a timely window into the outlook for household spending.

Spending trends

There has been quite a bit of negative chatter regarding the consumer in recent weeks.  It may be hard to remember, but when last we left the official data, consumer spending was gaining momentum.  After a difficult first quarter of this year, with spending up 0.6% annualized in real terms, expenditure picked up to a 2.5% pace in real terms in the second quarter.  From there, the July and August monthly advances were both robust, 0.4% in real terms for both months.  Assuming a minimal gain in September, that would likely translate to a quarterly annualized rise of around 3% in the third quarter.

The Bank of America Institute data suggest that consumer demand has held up in the face of notable headwinds over the past two months. Total Bank of America credit and debit card spending per household increased by 0.2% in September and 0.3% in October. The October reading was up 2.4% year over year, the largest annual gain since early 2024. The analysis by Bank of America Institute economists notes that the October performance could have been even better, but the government shutdown and two major storms in the Northeast dragged down spending in the DC region and the Northeast, respectively.  Outside of a handful of East Coast cities, where outlays were close to flat, the rest of the country registered spending growth of closer to 0.4% last month.

The Bank of America data for October show that the bulk of spending growth came in services. Outlays for lodging have been picking up in recent months, as travel demand has recovered after a sharp dip earlier in the year. Unfortunately, that may change in November, given the difficulties with air travel.  Restaurant outlays continued to post decent year-over-year gains.  The OpenTable data on the number of seated diners at US restaurants, a go-to data source during the early days of the pandemic, show double-digit year-over-year gains in October and in the first part of November.  For all of the talk about the specter of layoff announcements, low consumer confidence, and downside risks broadly for the economy, discretionary spending on services appears to be holding up just fine.

One caveat to that positive assessment is that I anticipate a forthcoming soft patch for consumer expenditures for big-ticket imported goods.  While there has been some passthrough of tariff-related costs to the consumer, businesses for the most part showed great restraint through the end of the summer.  However, increasingly frequent anecdotal reports suggest that pre-tariff inventories have been depleted, and firms are beginning to reckon more seriously with their pricing strategies.

As one example, the major automakers swallowed the bulk of tariff-related costs in the second and third quarters.  The prevailing strategy was to wait until the new model year, which traditionally begins in the fall, to push through hikes in sticker prices. The pattern of unit auto sales reflects that decision.  Unit auto sales ran at roughly a 16 million unit annualized pace through February, surged to nearly 18 million in March, as households began to get wind of the possibility of impending tariff increases on vehicles, and remained elevated in April at over 17 million.  There was no hangover in the immediate aftermath of that spike, as unit sales returned to a roughly 16 million clip in May and remained there through September.  However, in October, the combination of higher sticker prices and the expiration of the EV tax credit on September 30 led to a substantial drop in unit auto sales to 15.3 million.  I anticipate continued softness in the months ahead, as we see a delayed payback for the accelerated buying early in the year.

That pattern may be repeated across a number of big-ticket imported goods in the near term, including furniture, electronics, and appliances, all of which are mostly imported and thus subject to tariff increases.

The Bank of America Institute data points to the arrival of higher prices on the back of tariffs.  In October, retail card spending rose 2.0% in October compared to January, but the number of transactions declined outright versus January.  This bodes ill for real consumer spending in the fourth quarter, as the volume of purchases may temporarily sag while households absorb the loss of purchasing power that would accompany a pickup in the incidence of tariff-related price hikes.

Diverging fortunes

There has been frequent and growing discussion of particular weakness in consumer spending from lower-income households.  An often-discussed theme these days is of a K-shaped economy, where higher-income households thrive while those of modest means struggle.

The Bank of America data add substance to that idea but not for the most frequently cited reason. The popular narrative is that wealthier households are living the high life because of explosive gains in asset prices over the past few years while those with more modest asset holdings suffer.  While investment returns have undoubtedly been a benefit for those at the top of the income scale, who own a disproportionate amount of assets, the central story comes instead from the Bank of America data on direct deposit of paychecks.

For a brief time during and just after the pandemic, the normal situation was flipped on its head. Lower-paying jobs were most in demand, and workers in the lower half of the income scale were enjoying faster wage gains than their more upscale counterparts, a reversal of the normal alignment.  This topsy-turvy situation persisted until around the middle of last year.

However, since then, fortunes have flip-flopped as the labor market has moderated.  In October, the year-over-year advance in take-home pay for the upper third of the wage scale accelerated to 3.7%, the middle third had an increase of 2%, and the lower third saw a cooling to only 1.0%.

This divergence in pay has translated quite closely to the spending growth of the three income groups.  Through the end of 2024, the gains in spending for the were tracking close together across the income scale.  This year, the year-over-year advance in card spending per household has jumped to 2.7% for the top third, held around 1.5% for the middle third, and languished below 1% for the bottom third.  The Bank of America Institute analysis found that lower-income households were pulling back most sharply on discretionary outlays such as airlines, lodging and furniture.

The detailed Bank of America data, however, do not paint a dire picture overall for lower-income households.  The percentage of households who carry a credit card balance from month to month has been steady this year at levels well below 2019 and does not vary noticeably across the income scale.  Of the group that does routinely carry a balance, lower-income households are using somewhat more of their borrowing capacity than in 2019, but this measure has been flat since early 2024.  That said, the news is not all good on this front.  The share of households making only minimum card payments has risen, though the incremental increase this year has been much smaller than in 2024 across all parts of the income scale.

Conclusion

There are clearly some negative signals for household finances and consumer demand in recent months.  Stress at the lower end of the income scale is real, as evidenced most dramatically by the substantial increase in subprime auto loan delinquencies, though, as I have argued elsewhere, this is partly a reflection of special circumstances in the vehicle market during and after Covid.  However, the aggregate data on both household finances and consumer spending have remained largely healthy and, in my view, there is little reason to expect an impending collapse in the consumer.  While the data vacuum during the government shutdown has allowed financial market participants and others to let their worst fears run wild, I expect that when the flow of government information resumes, we will learn that the consumer has in the aggregate been healthy.  Beyond the temporary soft patch that I anticipate as part of the adjustment by households to the impact of tariffs on consumer prices, the outlook for the consumer heading into 2026 is solid.