Discretionary Spending Splits Along Income Lines as Consumer Sentiment Stays Uneven
University of Michigan and Conference Board data show sentiment diverging by household income, with mid-market retailers caught in the middle as spending patterns fragment.
Consumer sentiment readings from two of the most-watched sources are pointing in different directions again, and for operators in discretionary retail and services, the divergence is more telling than the headlines suggest. The University of Michigan's May 2024 consumer sentiment index landed at 67.4, down from 77.2 in January. The Conference Board's Consumer Confidence Index, meanwhile, showed a more modest softening, with its present-situation component holding steadier than the expectations component — a split that has persisted for several months.
What those top-line numbers obscure is the income stratification underneath them. High-income households, broadly defined as those earning above $100,000 annually, continue to spend on travel, dining, and home improvement at a pace that looks little affected by rate pressures. Households in the $40,000 to $75,000 range are the ones pulling back, and that is exactly the income band that mid-market discretionary retailers depend on most. For more on the topic discussed above, see US Daily Newswire.
Where the Pressure Is Actually Landing
Apparel, consumer electronics, and casual dining are the categories showing the clearest stress. Several regional mid-market chains have reported in recent earnings calls that comparable sales in those income-sensitive zip codes are running two to four percentage points below their higher-income trade areas. The pattern is consistent enough that it has started influencing real estate decisions — at least two specialty retail operators have disclosed that they are slowing new-store openings in metro submarkets where median household incomes sit below $65,000.
Home improvement is a more complicated picture. Big-ticket project spending is down as homeowners wait out elevated mortgage rates that have locked much of the existing housing stock. But consumable categories — paint, hardware, cleaning supplies — are holding because people are maintaining homes they cannot afford to sell into a thin market. That is a useful distinction for regional suppliers and distributors who serve both segments.
The Conference Board's expectations component is worth watching separately from the present-situation score. When expectations fall faster than current conditions, consumers are telegraphing that they anticipate tightening ahead. That gap has been widening since February, which suggests the mid-market squeeze is not close to a bottom.
Fuel costs are a complicating variable. The U.S. Energy Information Administration has the national average retail gasoline price oscillating around $3.50 per gallon through the spring, which is not a shock level but is enough to tax lower-middle-income budgets that have little cushion left after two years of food and shelter inflation.
For operators tracking these dynamics: the practical move right now is to separate your customer data by income-proxy indicators — zip code median income, loyalty program tier, basket size — and run separate trend lines before drawing conclusions from aggregate comp numbers. A flat comp that masks a strong high-income cluster and a deteriorating mid-tier cohort calls for a different response than a uniformly flat comp. The bifurcation is real and it is durable enough to plan around, not just monitor.