Are US consumers weakening, and does that even matter for US equities?

The US consumer was the hero of the post-COVID global economy. For about two years in the post-pandemic recovery, unexpected resilience in spending was the watchword for economists and investors. That consumer spending helped the United States lead the developed world in post-pandemic GDP growth and maintain strong market outperformance until 2025. More recently, however, there has been some greater cause for concern about the US consumer.

While consumer confidence has held up relatively well, spending growth among US consumers is beginning to outpace earnings, key tax breaks offered by the Trump administration are beginning to peter out, and the energy price shock is eating up disposable income on the lower ends of the income spectrum. At the same time, the US economic story has shifted from consumer resilience to AI infrastructure. Consumers are no longer at the core of the growth narrative, for GDP or for the US stock market.

“I would say that rather than broad based weakening, I think it’s a bit more of an uneven consumer backdrop where strength at the top is masking some of the softness underneath,” says Neil Shankar, Vice President of Economic Research at CI Global Asset Management. “Overall spending has held up, but I would say that underlying fundamentals for the consumer more broadly are softer. one thing I’ve pointed to kind of over the past few months is the fact that real consumption growth has been running well ahead of real income growth in the US. So essentially folks are spending more than they make, or at least the pace of growth in spending is outpacing the pace of their income gains. And to me, I think that suggests that the overall consumption in the economy is likely to slow a little bit as we look ahead.”

Shankar stresses both the role of tax credits and fiscal stimulus, as well as continued strength from the upper income brackets of US consumers as core reasons not to worry too much about US consumption. The so-called ‘K-shaped economy,’ which has seen higher income spending grow while lower income earners struggle to keep pace, has been observed for years now and has still produced aggregate consumer growth. Shankar believes, however, that as some of the supports for consumers introduced in the One Big Beautiful Bill begin to fade, there may be yet more vulnerabilities exposed, especially on the lower end of the income spectrum.

While consumption has long been an established driving force for both the US economy and the US stock market, Shankar notes that the role of the consumer may be muted somewhat by the new focus on AI and the economic and market dynamics that it introduces. Eric Lascelles, Chief Economist and Head of Investment Strategy Research at RBC Global Asset Management, notes that we are now in a unique situation for the US economy, where growth doesn’t necessarily come with a consumer engine.

“Normally, consumers are the engine of growth,” Lascelles says. “It’s vanishingly rare for there to be a period of robust economic expansion without the housing market booming or rising in a significant way. And of course that’s not happening either. And so this is an unusual moment. And of course the answer to that is that we have this capex boom that is very much tech driven. And so that has been strong paper over you’ll less impressive performances elsewhere. And I think that squares very much with the stock market.”

Lascelles notes that the US stock market’s recent growth has been disproportionately tech driven, whether by the hyperscalers or by hardware manufacturing companies. Even traditionally non-tech sectors like industrials have picked up momentum largely due to the AI infrastructure boom. While consumer discretionary stocks are up, as well, they have not fully participated in the overall market rally, partially shifting overall market capitalization away from more consumer-facing stocks.

Despite the uniqueness of the situation, both Shankar and Lascelles emphasize that US consumers are holding in relatively well on aggregate. Lascelles highlights some pessimism from energy prices, slow hiring, and existential concerns about AI and the future of work. Nevertheless, he and Shankar both note the strength of consumers at the top end and, from an investment perspective, the fact that a non-consumer narrative is now driving markets more than consumer growth.

For advisors trying to make sense of these consumer dynamics and how they’ll play out in markets and the US economy, both Shankar and Lascelles note political and long-term growth risks associated with the inequality of the K-shaped economy. They emphasize that the immediate headlines about consumer supports falling away or weakness in certain US consumer segments, however, should be understood in the context of a wider shift in the economy and the market.

“The key message is that the US consumer is holding up at the headline level but becoming more uneven beneath the surface. Overall spending in the data that we look at continues to remain resilient, but that’s increasingly driven by higher income households supported by the strong equity market performance and the wealth effect that we’ve seen play out,” Shankar says. “Markets today are more than just a consumer story. The AI theme is playing a bigger role. So that’s another big focus I would be highlighting to clients. And ultimately there are a lot of moving parts. And while headlines can sometimes paint a grim picture of the consumer, the focus should remain on the data that matter.”