How are American consumers feeling about the economy? The answer varies by household, and there is no single metric that can fully capture it.
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A quick way to take the pulse of the economy, though, is to see what consumers are spending on things beyond the essentials. Discretionary spending—on non-essential goods and services—reflects households’ financial confidence and capacity beyond necessities.
When consumers increase spending on things like dining out, travel, entertainment, and luxury goods, it signals good job security and future income prospects and reflects low unemployment, wage growth, and positive economic sentiment. Conversely, when households pull back on this type of spending, it foreshadows economic weakness and is often the first indicator of a broader economic slowdown.
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In today’s economy, there is a clear divide between high and low-income households. While there are headwinds present for all, lower-income consumers have been more severely impacted by inflation. They have less room in their budget for discretionary spending given the higher food and shelter costs.
By contrast, upper-income consumers have retained purchasing power. According to Moody’s Analytics estimates, the top 10% of earners in the U.S. economy account for half of all consumer expenditures. JPMorgan’s Cost of Living Survey found high-income consumers are expressing stronger economic confidence for the next 12 months as well.
To better understand how this is playing out, NewHomeSource parent company Zonda reviewed earnings commentary from eight major consumer brands: Apple, Delta, General Motors, McDonald’s, Nike, Royal Caribbean, Starbucks, and Wayfair. Several themes emerged:
Consumers remain willing to spend on non-essentials despite inflation, tariffs, and overall uncertainty.
Companies with ultra-discretionary products and services, like Apple and Royal Caribbean, reported strong consumers and demand.
Companies serving broad consumer segments—Nike, Starbucks, General Motors—reported resilient or improving spending.
Nearly all companies saw sequential quarterly improvement in their metrics, indicating there has not been a comprehensive retreat in discretionary spending.
Delta, McDonald’s, and Wayfair noted a bifurcation among customers, where affluent consumers are spending more and lower-income households are pulling back on spending.
What This Means
The results of these public companies suggest discretionary spending is holding steadier than consumer sentiment surveys would imply. While households are not completely comfortable, they are still spending. There are some indications, though, that non-essential spending is being driven mainly by wealthier households.
At the same time, national sentiment remains weak. The University of Michigan’s index of consumer sentiment declined to a near all-time low in November.
For the housing market, the impacts are unclear. It could mean that the entry-level market remains depressed while the move-up markets with more affluent buyers remains strong. These trends do suggest, though, that the economy is holding up and a slowdown in the broader economy is not imminent.
