Low-income Americans slash spending, a worrying sign for the economy

[dalton99a]

https://www.washingtonpost.com/business/2025/09/20/low-income-spending-economy/

Low-income Americans slash spending, a worrying sign for the economy
Spending is softening in a “fragmented way,” analysts warn, and even wealthy Americans are scaling back.
September 20, 2025 at 7:00 a.m. EDT
By Jaclyn Peiser

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Working-class Americans — already up against waning wage growth and rising housing and electricity costs — are easily burned by any increase in grocery prices and tariff-fueled increases on household staples, apparel and furniture, according to recent Moody’s Ratings report. They’re increasingly dipping into their savings, racking up more debt, and pulling back on discretionary spending, according to recent government data, analyst reports and retail executives.

Meanwhile, those in the middle- and upper-income tiers are being more strategic about when to make big purchases, buying in bulk and shopping at cheaper retailers, said Mickey Chadha, a Moody’s retail analyst and vice president. Walmart, Dollar General and Dollar Tree have told investors that they’ve picked up share among wealthier consumers looking for bargains. And sales in the luxury sector are weakening as customers grow increasingly fed up with brands charging higher prices without notably improving quality and offering compelling new merchandise.

High earners are still largely holding up consumer spending, which accounts for about 70 percent of the gross domestic product. But it’s become a narrower base: The top 10 percent of earners — making $250,000 or more annually — accounted for 49.2 percent of spending in the second quarter, according to Moody’s Analytics. That’s up from 45.8 percent during the same period two years ago.

And that won’t be enough to shield the U.S. economy, said Marshal Cohen, chief retail adviser at market research firm Circana.

Several major brands, retailers and quick-service restaurant chains have lowered their financial outlook for the year, signaling a broader downturn. Target chief commercial officer Rick Gomez told investors in an earnings call last month that the company is “planning cautiously for the back half of the year, given continued uncertainty and volatility.” Meanwhile, PepsiCo, Kimberly-Clark and Procter & Gamble have slashed their earnings guidance as tariffs cut into their margins and consumers substitute their brands with cheaper store labels.

Chipotle, IHOP, Applebee’s and Sweetgreen have all noted that their customers are pulling back.

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The Trump recession is coming - with the dreaded stagflation

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