• Lower-income households are now posting stronger card spending growth than higher-income ones, reversing the K-shaped trend.
  • The shift is driven by stronger labor income, lower fuel costs, and favorable year-over-year comparisons.
  • Analysts see potential for sustained consumer demand but caution that one data point does not confirm a trend.

Narrowing the Gap

Bank of America (BAC)’s internal data shows that lower-income households have overtaken higher-income ones in card spending growth, ending the so-called K-shaped recovery pattern. According to the bank’s research, the shift reflects improving financial conditions for lower-income Americans, fueled by rising wages and falling gasoline prices.

“Lower-income spending growth has accelerated, while higher-income spending has moderated,” said a Bank of America economist, speaking on condition of anonymity. “This is a notable change from the post-pandemic period.”

The data, based on aggregated card transactions, indicate that lower-income households posted a year-over-year spending increase of 4.2% in the latest week, compared with 3.1% for higher-income households. The reversal comes after months of stronger spending among affluent consumers.

Drivers and Implications

Labor income gains have been particularly pronounced at the lower end of the wage scale, as tight labor markets and minimum wage increases boost earnings. Meanwhile, fuel costs have declined roughly 10% from a year ago, providing disproportionate relief for lower-income households, who spend a larger share of their budget on energy.

“Favorable base effects are also at play,” the economist added. “Last year, lower-income spending was weighed down by inflation and depleted savings, so comparisons are easier now.”

The trend has implications for consumer lenders and retailers. Bank of America, one of the largest U.S. card issuers, may see continued growth in transaction volumes, though credit risk could remain elevated if the improvement fades.

Cautious Optimism

While the data signal a potential normalization, observers warn against overinterpreting a single week’s figures. “It’s too early to declare the K-shaped recovery dead,” said a credit analyst at a rival bank. “We need to see sustained improvement in labor income and energy prices.”

Bank of America declined to comment further. The bank’s internal research is widely followed by investors and policymakers as a real-time gauge of consumer health.