Americans, frustrated by prolonged inflationary pressures, are entering the 2025 holiday shopping season with a combative mindset. However, this holiday shopping season may appear significantly more robust than one might anticipate – at least in theory. High-income consumers continue to spend as if they are oblivious to the affordability crisis that is frequently discussed. However, individuals from middle- and lower-income brackets, despite expressing dissatisfaction with their financial circumstances, continue to engage in spending, overall. This situation is leading to projections of stagnant or potentially modestly increased retail sales growth for 2024, with Mastercard anticipating a 3.6% increase in total holiday spending this year. However, those individuals are increasing their expenditures partly due to elevated prices. Persistent inflation, alongside elevated price levels, has compelled consumers to expend greater amounts during the holiday season, resulting in an increase in spending figures. “Holiday shopping is far from full swing, but spending shifts are already surfacing,” stated Vicki Hyman, in a recent report. “Inflation is anticipated to play a more significant role in driving sales growth, rather than actual sales volume.” Thus, the holiday shopping metrics from Black Friday and subsequent days may present an overly optimistic view of the economy, despite media coverage often neglecting the more troubling aspects that have incited public frustration. “Low-income and high-income households are often living in two different worlds – and experiencing two different economies,” stated Joe Wadford, in an interview. The period from Black Friday to Christmas will serve as a litmus test for the robustness of America’s economy. Initial assessments appear favorable: This year has witnessed a notable surge in early-bird holiday shoppers, as indicated by a report released earlier this month from Bank of America.
Over the past decade, paychecks have increased in size, and deposits into Bank of America accounts have risen compared to 2019, according to the bank’s report. The data indicates a notable increase in credit and debit card expenditures, which experienced a growth of 2.4% per household in October 2025 compared to October 2024, marking the most significant month since February 2024. The bank reported that spending has increased for five consecutive months. In October, the demand for holiday items experienced a robust increase of 5.7% compared to the previous year. A consumer navigates the aisle featuring Christmas decoration items at a retail establishment in Houston, Texas, on November 18, 2025. A consumer navigates the aisles of a retail establishment in Houston, Texas, selecting Christmas decoration items on November 18, 2025. However, it is important to note that this expenditure is quantified in monetary terms rather than in the number of items. The volume of shopping transactions monitored by Bank of America has experienced a modest decline since January. In other terms: Inflation is impacting Americans’ purchasing power – and potentially their capacity for gift giving this year. “Consumers are clearly spending more and getting less,” Wadford stated. Certain spending figures might also be distorted by tariffs. As the fluctuating tariffs implemented by Trump began to materialize, there was a notable surge in consumer purchasing of goods such as electronics and jewelry, as individuals sought to preemptively mitigate the anticipated price hikes. Such circumstances could ultimately result in reduced expenditure on those items throughout the holiday season, as a significant number of individuals may have already acquired their desired goods or because elevated prices might deter certain consumers from engaging in holiday purchases.
Another issue with aggregate holiday shopping reports is that they seldom provide insights into the demographics of the shoppers. The details often depict a more nuanced and less favorable view of the economy compared to the more optimistic narratives presented in certain headlines. The latest Beige Book from the Federal Reserve, which compiles various economic anecdotes, indicates a downturn in consumer spending among low- and middle-income households. Consumers are becoming progressively constrained in their financial resources, prompting a heightened demand for discounts and promotions during their shopping activities. Meanwhile, the Federal Reserve observed that affluent consumers are maintaining their spending patterns, particularly in luxury goods and travel. The emerging trend is beginning to manifest in holiday spending reports as well: Lower-income Americans have maintained their spending habits, with credit and debit expenditures increasing by 0.7% last month compared to October 2024, a figure that lags significantly behind annual inflation, according to Bank of America. However, high-income Americans elevated their spending at a rate exceeding three times that pace. It is a characteristic of the K-shaped economy, where individuals with higher incomes benefit from stock market gains and increased home values, subsequently utilizing their enhanced earnings for consumption. However, individuals with lower incomes are increasingly finding themselves living paycheck to paycheck, seeking discounts, or reducing their expenditures in response to escalating prices.
Individuals earning $170,000 and above continue to exhibit robust spending patterns, demonstrating double-digit growth this year, as highlighted by Heather Long, chief economist at Navy Federal Credit Union. However, individuals with moderate incomes, especially those possessing low credit scores, are exhibiting reduced spending compared to their pre-pandemic levels. Bank of America discovered that wages have increased by a mere 1% year-over-year for low-income families. However, the September inflation report indicates a 3% increase in prices. “When your expenses increase by $300, while your income rises by only $100, what course of action will you take?” Wadford stated. For individuals experiencing financial strain, the pressure continues to escalate. “It truly is a bifurcated economy,” stated Stephen Squeri during an earnings call with analysts last month. Squeri observed that American Express customers generally exhibit higher spending levels compared to those using other credit cards, a phenomenon he ascribed to the wealthier demographic typically associated with Amex clientele. Executives from various consumer brands, such as Target, Walmart, Home Depot, Crocs, Chipotle, and Coca-Cola, have observed a notable level of consumer distress among individuals earning approximately $100,000 or less, contrasted with strong consumer spending among those with higher incomes. A recent poll indicates that 76% of Americans now hold a negative perception of the economy, an increase from 67% in July. “I would characterize it as a K-shaped economy on steroids this holiday season,” stated Long. “If one examines the aggregate expenditure and overall growth, the outlook appears favorable. However, when analyzed by average expenditure per cardholder, the narrative shifts significantly.