Consumer Spending Is Mostly Rich People

The apparently “resilient” American consumer is one of the few pillars holding up the economy. If that pillar falls – and if wealthy spenders cut back for any reason – there could be serious implications for all consumers.

The headline numbers don’t look bad, but they conceal deeper truths. For August, U.S. retail sales increased by 0.6% month-over-month, notably better than the 0.2% growth that economists had predicted.

Particular strength was found in the categories of clothing and clothing accessories (up 1% month-over-month) as well as sporting goods, hobby, musical instrument, and book stores (up 0.8%). However, bear in mind that August is a back-to-school shopping month, so these positive trends aren’t guaranteed to persist.

Still, the headline trend seems to be positive overall. July’s retail sales were upwardly revised to a gain of 0.6% from the previously reported increase of 0.5%; between that and August’s expectation-beating print, there’s really nothing to be concerned about – right?

Courtesy: Liz Ann Sonders

Actually, there are some concerning points, including the concentration of spending activity among the wealthy. Believe it or not, U.S. consumers in the top 10% of the income distribution accounted for a whopping 49.2% of total spending in 2025’s second quarter.

That’s up from 48.5% in the first quarter, and it’s the highest share going all the way back to 1989. What does this say about the state of the American economy in the 2020s?

Perhaps you’ve heard of the “bifurcated” or “K-shaped” economy that Americans are facing now. It’s a tale of two economies: one for the wealthiest 10%, and a very different one for the middle class.

In this scenario, rich Americans get richer year after year because they’ve benefited from the decaying U.S. dollar and rising stock prices. They can afford to buy a new car every year or splurge on the new Nintendo Switch 2 or the updated lineup of iPhones, AirPods, and Apple Watches.

Courtesy: St. Louis Fed, @NorthmanTrader

The loss of purchasing power due to government money printing has been a blessing for wealthy holders of stocks, gold, silver, and Bitcoin. Meanwhile, middle-class Americans struggle as they hold cash with less and less value every year.

This helps to explain why many U.S. consumers are seeking out bargains nowadays. Or, as Best Buy CEO Corie Barry put it, American consumers are “choiceful.”

It’s not a great sign for the economy if people are forced to be “choiceful,” which implies that Americans are making tough financial choices. The truth of the matter is that budgeting or bargain hunting isn’t typically a choice; people are forced to do it by their circumstances.

So, when the media proclaims that there’s been a positive surprise in the consumer spending data, always take this with a grain of salt. Consider who’s doing most of the spending and what it means when most people don’t get to participate in the spending spree.