• Consumer spending started the year with momentum. Aggregate card spend rose 2.2% year-over-year in January – slower than last summer’s pace but partly weighted down by disruptions from Winter Storm Fern.

  • But the consumer is increasingly split, and spending is “K-shaped.” Higher-income households are driving an increasing share of spending, while inflation-adjusted spending by lower-income households has now slipped below pre-pandemic levels.

  • Generative AI has quickly become a new spending category. Consumer outlays on AI subscriptions have jumped 150% from last January, with adoption rates more than doubling across all generational cohorts.

  • The K-shaped consumer story is also apparent in household balance sheets. Inflation-adjusted checking and savings balances for higher-income households remain 54% above pre-pandemic levels and are rising, while lower-income balances have largely reverted to pre-pandemic norms.

  • Income growth rebounded in January, but labor market softening persists. Direct deposit income growth picked up to 3.4% in January, but we’re still seeing a slow, gradual trend upward in unemployment payments.

 

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