Despite recent consumer sentiment reports that reveal concerns about household income, holiday season spending and the employment outlook, Bank of America’s Holiday Spending Media Roundtable this week painted a more optimistic picture.
Through the lens of an economist, the consumer, and in fact, the entire economy, is more resilient than some think. And in regard to consumer spending, the so-called “K-shaped” economy might be changing into a “C.”
Shruti Mishra, U.S. economist at BofA Global Research, said the U.S. economy continues to defy expectations as consumer resilience, driven by a broadening labor market and substantial wealth buffers, keeps growth comfortably around trend. Amid persistent fears of an impending slowdown, recent financial data highlights an economy firing on all cylinders, anchored by strong retail spending and a powerful investment wave in artificial intelligence infrastructure.
Mishra said the macroeconomic picture is far brighter than popular narratives often suggest. While economic forecasts frequently emphasize risk, underlying demand indicators point to a robust economic engine entering the fourth quarter.
“Myths are usually known for bringing a lot of doom and gloom, but when it comes to the U.S. economy, there’s actually quite a lot to feel good about right now,” Mishra said. She said growth remains steady, the labor market stays balanced and the nominal economy continues to boom, led primarily by capital expenditure in technology and a surprisingly persistent consumer base.
A central question for financial analysts has been whether consumer momentum could survive rising gas prices and the fading effects of earlier tax reforms. High-frequency spending data suggests it has. Credit card tracking indicates that real consumption expanded at a solid 3.5 percent pace in the third quarter, with spending activity remaining healthy through early October rather than running out of momentum at summer’s end.
“Basically, the U.S. consumer has spent much of the last few years defying gravity, and so far, there’s little evidence that gravity has won,” Mishra said.
A significant shift in consumer behavior involves the narrowing of the spending gap between different income demographics. For much of the past two years, the economic narrative focused on a stark K-shaped recovery. Higher-income households thrived on surging stock market valuations, while lower-income families felt the pinch of cumulative inflation.
Recent internal spending data shows that this divide has compressed significantly since July. Lower-income spending is no longer restricted to essential goods like groceries and fuel, as discretionary purchases among lower-income households have experienced a notable rebound. The “K” is turning into a “C.”
This trend reflects a fundamental shift in wage dynamics. Income growth for lower-income households reached 4.5 percent year-over-year in September, outpacing the 3.8 percent growth observed among middle- and higher-income cohorts. This wage acceleration is closely tied to an expanding physical buildout across domestic industries.
The surge in artificial intelligence development extends well beyond software applications in tech hubs. Constructing the physical foundation required for advanced computing has created substantial demand for blue-collar labor. “Building the AI infrastructure requires more than just software engineers; it requires data centers, electricians, construction workers, buildings and electrical equipment,” Mishra said. “That’s one way the investment boom from AI can reach Main Street from Silicon Valley.”
Job gains in these physical infrastructure sectors have directly boosted lower-level income streams, providing a reliable foundation for consumer confidence. For the average family, a steady paycheck remains the single most impactful financial asset, outweighing market movements.
At the same time, household balance sheets across the aggregate economy reflect historic stability. Total household assets currently stand at more than ten times household liabilities. Liquid assets relative to debt remain at historically elevated levels, providing a buffer against economic shocks.
However, wealth distribution remains concentrated. The top 10 percent of households hold roughly 40 percent of equity-related assets, while the bottom 20 percent hold approximately 1 percent. While the aggregate balance sheet looks exceptionally strong, individual experiences vary depending on market exposure.
“When I say that there are strong household balance sheets in the economy right now, you shouldn’t conclude that every household feels wealthy,” Mishra said.
Because higher-income households account for a disproportionate share of discretionary spending, equity market performance remains a critical variable to monitor. High-income cohorts rely heavily on investment returns to sustain premium services spending, even as their wage growth moderates.
“The two important takeaways here: one, the most important asset is not a stock portfolio; it’s a paycheck, and recently the paycheck story has improved for the lower-income consumer,” Mishra said.
As the economy enters the final months of the year, the combination of expanding wage growth on Main Street and high liquidity among upper-income groups provides a durable foundation for broader retail momentum.
