US Consumer Health Update

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Our composite outlook index has fallen by 5.3 points over the last four weeks, led by an 11.8-point drop in the outlook score for upper-income earners.

Upper-income earners are reacting most negatively to the new US tariffs.

• We base our outlook reading for upper-income consumers on their perceptions of their investment portfolios’ prospects. Given the recent turmoil in US equity markets, it is not surprising that we have seen this nearly 12-point drop. This month’s reading is the lowest ever for this group in the history of our data series, with one exception: the onset of the Covid-19 pandemic, where the reading was just 2 points lower.
  
  
• Counterintuitively, upper-income earners’ spending intent rose significantly this month by 2.1 points. Typically, we would view an increase in spending intent as a sign of strength. But the weekly frequency data suggests this income group is likely hoping to front-run the impending tariffs by making purchases now.
  
  
• Upper-income earners represent a disproportionate share of US spending and more than 50% of discretionary spending. If this group’s extremely negative outlook reading persists, their spending intentions are likely to decline, placing significant contractionary pressure on the US economy. But our data also suggests that the effects of a worsening upper-income outlook on consumer spending may not appear immediately.  

Middle-income consumers are adopting a defensive posture but are less concerned about their main asset (housing) than upper-income consumers.

• Our outlook index for middle-income consumers, which is based on their perceptions of the prospects for their home values, has declined just two tenths of a point since last month. This reading is in long-term neutral territory.
  
  
• However, intent to save for this group has spiked by 2.4 points, and intent to use debt has contracted by 2.5 points. These large shifts in opposite directions suggest that middle-income consumers are alarmed and are taking steps to shore up their financial postures.

Lower-income consumers show the fewest signs of concern.

• The lower-income outlook score, based on this group’s perceived prospects for all-source income, continues a six-month uptrend that suggests earnings prospects are slowly improving for this group.
  
  
• Lower-income earners are not reporting the same savings or debt signals as their middle-income peers. If we search for a pattern, we could say that lower-income earners have reported an increasing intent to use debt for the last two months, indicating some need to use debt to cover monthly costs. But this trend appears unrelated to emerging tariff policy. Based on our latest data, lower-income consumers appear to be significantly less impacted by tariff policy developments.

Bain and Dynata created the Consumer Health Indexes in 2017 to support business decision makers in their near- and midterm planning for their businesses. To achieve this, we have been asking questions that are within the expertise of the people taking our surveys. What are their personal spending plans? What are their saving plans? What is their use-of-debt plan? These are direct, easily understandable questions about survey respondents’ near-term expected behaviors. They require little interpretation, macroeconomic expertise, or filtering through the lens of the political or news cycle. Since 2017, our clients have been using our Consumer Health Indexes as a differentiated data point relative to existing confidence indicators. 

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