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Six months into President Donald Trump's tariffs, lower- and middle-income Americans are feeling the pinch from persistent inflation, steep borrowing costs, and a housing market out of reach.
While Wall Street keeps popping champagne, Main Street is starting to buckle.
A growing number of analysts are pointing to a worsening K-shaped economy, where the rich keep spending and investing while the rest tighten their belts.
Read Also: The Economy Is In A ‘K Shape’ — Here’s What That Means For Your Money
According to the latest Wunderkind October survey, 60% of U.S. consumers now feel cautious, pessimistic or outright panicked about the economy. This growing sense of unease is driving a noticeable shift in behavior, with the majority turning to value-first strategies.
Nearly half of respondents say they are seeking deals more frequently, while a significant share are scaling back on non-essential purchases.
Many are also shopping less overall, signaling a broader pullback in consumer activity tied to persistent price pressures and economic uncertainty.
These shifts in behavior align with the latest University of Michigan consumer sentiment index, which declined for a second straight month in September and sits 21.4% below year-ago levels.
"Consumers continue to express frustration over the persistence of high prices, with 44% spontaneously mentioning that high prices are eroding their personal finances, the highest reading in a year," said Joanne Hsu, director of the University of Michigan's Surveys of Consumers.
But there's a catch: sentiment among consumers with larger stock holdings held steady, while those with little or no market exposure saw their confidence drop.
This divergence further confirms a K-shaped recovery—where asset-rich Americans keep spending, while everyone else pulls back.
Despite headlines about a booming travel recovery, Bank of America Institute data showed that spending on airlines and lodging has declined 2% year-over-year since early 2023, with the weakest trends among low-income consumers.
Lower-income households are also skipping trips and cutting back on other discretionary purchases—like hotel stays or flights.
“Travel – typically a discretionary and relatively costly expense that requires some element of planning – tends to be
impacted by lower consumer sentiment and increased feelings of economic uncertainty,” said David Michael Tinsley, senior economist at Bank of America Institute.
At the same time, Bank of America payroll data from direct deposits showed wage growth slowing to 0.5% year-over-year in September, the softest in months. Meanwhile, unemployment-related payments rose 10% year-over-year in October—suggesting rising jobless claims, particularly among lower-income workers.
According to Jeff Jacobson, equity strategist at 22V Research, the staples retail sector could be flashing red at the upcoming earnings reports.
"Staples retail is an area to look for negative surprises, especially names like Kroger, Sysco, Walmart, Costco, Dollar Tree, and Target."
The Consumer Staples Select Sector SPDR Fund (NYSE:XLP) broke below support at $79.50 and is flirting with a test of the January-April lows near $76. Jacobson believes the ETF’s resilience has been "propped up" by giants like Walmart Inc. (NYSE:WMT) — which now looks toppy.
With other major retailers like Costco Wholesale Corp. (NASDAQ:COST), Target Corp. (NYSE:TGT), and Kroger (NYSE:KR) slipping lower, the sector appears vulnerable to more downside if consumer weakness persists.
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Photo: IAB Studio/Shutterstock
