Spending Patterns Split: What Investors Should Know About Diverging Consumer Behavior

A newly published brief by the Consumer Finance Institute at the Federal Reserve Bank of Philadelphia highlights a growing divergence in spending behaviour across income segments in the United States. The research, conducted by Tom Akana and published in November 2025, draws on data from the LIFE (Labour, Income, Finances and Expectations) survey fielded in early October 2025. The findings carry implications for investors seeking to understand consumption trends, segment-specific risks and opportunities in the consumer economy.

Key Findings: Income Matters

The survey of 2,462 respondents, weighted to reflect the 2019 American Community Survey population, asked three key questions: respondents' current spending intentions, reported spending over the last three months compared with a year ago, and the primary factor influencing their recent spending changes.

The results reveal that more than half of all respondents (55.1 %) say they have been consciously trying to reduce day-to-day spending in the three months since July 2025. For households earning less than US$40,000 annually, that figure rises to 58.7 %. By contrast, in the highest income group (US$150,000+), 51.7 % say they are intentionally cutting back.

When asked about actual spending in the past three months versus the same period last year, the divergence becomes even clearer. Among households earning under US$40,000, 31.4 % report that they spent less than a year ago, while 33.3 % say they spent more for a net spending change of only +1.9 %. By contrast, for those earning US$100,000 to US$149,000, 21.7 % report spending less and 44.1 % report spending more – a net of +22.4 %. For income above US$150,000 the numbers are 19.4 % spending less and 43.4 % spending more – a net of +24.0 %. For all respondents the net is +10.8 %.

What's Driving the Divergence?

The brief also explores what respondents identify as the primary factor influencing their spending changes. Across the board, the cost of goods and services (i.e., inflation) is the most frequently selected factor 51.6 % overall. But the breakdown by income reveals interesting heterogeneity.

For households earning less than US$40,000, 28.2 % say changes in their personal circumstances (income, household size, employment status) are the most important driver, while 49.3 % cite cost of goods and services. For high-income households (US$100,000+), only about 17-19 % cite personal circumstances, while roughly 58% cite cost pressures. The pattern suggests lower-income consumers are more vulnerable to employment or household shocks, while higher-income consumers are more impacted by inflation and broader cost dynamics.

Investor Implications: Segment-Specific Exposure

For investors, these findings underscore the importance of distinguishing consumer-facing segments by income-tier exposure rather than viewing aggregate spending as a uniform driver of growth.

• Upper-income consumer discretionary plays: The stronger spending growth among higher-income households (net +22 % to +24 %) signals resilience in sectors that cater to premium discretionary, luxury goods, travel, high-end experiences and non-essentials. Firms whose customers skew affluent may continue to benefit from spending momentum even as broader affordability pressures persist.
• Mid- and lower-income consumer caution: The near-flat or minimal net gain (+1.9 %) among the lowest income bracket suggests constrained discretionary spend for households under US$40,000. Businesses with heavy exposure to this group (mass-market retail, value price hospitality, entry-level automotive) may face headwinds or require more margin flexibility.
• Cost pressures and margin risk: The fact that inflation (cost of goods and services) is the dominant driver across income groups speaks directly to margin pressures for firms. Higher input or service costs may erode profit unless pricing power or efficiency improvements offset them. For companies with price-sensitive customers, raising prices may weaken volume.
• Employment and household shocks: The elevated share of lower-income households citing personal circumstances means that this group remains more exposed to labour market risks, reductions in hours or changes in household composition. This adds a layer of cyclicality to spending in this segment beyond just inflation dynamics.
• Aggregate figures can mislead: While aggregate consumer spending remains relatively healthy, the underlying divergence means that relying solely on overall growth may mask important weakness in subsidised spending bases. Investors should scrutinise the income profile of a company's customer base and align that with consumer survey data such as this brief.

Broader Economic Context & Risks

The research arrives in a broader macro-environment marked by elevated inflation, higher interest rates and uncertain growth trajectories. Since the cost of goods and services is the top cited driver of spending behaviour, any re-acceleration in inflation or input-cost pass-through could tighten consumer budgets further especially for households already signalling conscious spending restraint.

Moreover, the divergence suggests a K-shaped recovery pattern continues to hold, where consumers with more income and assets expand spending, while lower-income households lag. That dynamic could exacerbate inequality, but also lead to shifts in the relative performance of companies and sectors based on customer income mix.

From a risk perspective, if inflation remains persistently elevated and interest rates stay high, lower-income consumers may reduce spending further, impairing growth in segments heavily reliant on them. For high-income segments, the risk is a sharp asset-price correction or labour-market shock which could dampen their discretionary spending. The management of margin erosion, pricing power and cost control becomes critical across the board.

What Investors Should Monitor

Here are a few actionable signals derived from the brief's findings that investors may wish to monitor:

• Customer income mix: For retailers, hospitality and travel firms, the proportion of spend derived from higher-income vs lower-income households becomes a key differentiator in outlook.
• Pricing levers and margin guidance: Companies that serve lower-income consumers may have less flexibility to raise prices, potentially compressing margins. Conversely, premium brands may retain pricing power but must guard against volume softness if broader sentiment turns.
• Labour market indicators: Since lower-income households report their household circumstances as influential, data on employment, hours, wage growth and household formation in the lower income tiers merits attention.
• Cost passthrough and inflation sensitivity: With inflation driving behaviour, the extent to which companies can pass through cost increases without volume loss will be pivotal especially in consumer-facing sectors.
• Consumer survey data by tier: Beyond aggregates, investors should pay attention to micro-level survey data (such as the LIFE survey) that reveal spending intention shifts, not just recent spending outcomes.

In sum, the data from the Consumer Finance Institute at the Federal Reserve Bank of Philadelphia provide a timely snapshot of diverging consumer behaviour by income. For investors navigating the consumer landscape, it emphasises that “consumer spending” is not monolithic. Detailed segmentation and vigilance around income-tier exposures, cost pressures and household circumstances will be increasingly relevant to identifying winners and managing risks in the consumer economy.