• Despite low consumer sentiment due to persistent inflation (CPI up to 3.0%) and income insecurity, mid-to-high income consumers remain resilient.
• Major retailers like American Eagle and Macy’s have posted strong sales growth for an increasing number of consecutive quarters.
• Meanwhile, fast food chains are struggling as low-income consumers are eating out less. This division in consumer spending is throwing up opportunities for active investors.

Investors are often cautioned about the risk of persistent inflation eroding purchasing power and, therefore, hitting consumer spending. This is further exacerbated by inflation expectations – if a consumer expects the price of goods to come down in the near future, they will delay purchases. With inflation running rampant over the past four years, it was inevitable that consumer demand would weaken. However, as soon as inflation started to cool down in the US this summer, dipping as low as 2.3% (CPI), price increases have reignited, and inflation has crept back up to 3.0%. It is no surprise then that we find consumer sentiment at all-time lows.

Source: University of Michigan Consumer Survey, November 2025

Despite this, recent earnings reports from major retail players suggest that the American consumer is once again proving to be remarkably resilient. People are demonstrating an ongoing willingness to spend on discretionary items, a positive sign that consumption remains robust. The latest quarterly results from Macy’s, the benchmark for the department store sector, highlighted its strongest sales growth in 13 quarters. Meanwhile Bloomingdale’s boasted 8.8% in sales growth, a fifth consecutive quarter of growth, and American Eagle announced revenue growth of 6%; considerably ahead of expectations[i]. These results provide tangible evidence that even as prices rise, consumer desire to spend on discretionary purchases remains strong enough to overcome general economic anxieties, at least in the mid-high-income bracket.

However, at the same time, we are seeing major restaurant chains like Chipotle and McDonald’s cautioning about flagging purchases among low-income customers. Chipotle is expecting revenue to decline as they cite a widening gap between low-income and affluent customers. Fears of inflation rising once again are causing consumers to eat-out less and save for a rainy day. Zillow, the US equivalent of Rightmove, showed how half the metropolitan areas in the US saw price increases, whilst half saw prices falling. No longer is the market acting in unison but there is a division within.

All this information underscores the fact that not all consumers are impacted equally by macroeconomic pressures. While lower-income households may be trading down or pulling back on spending, higher-income consumers continue to spend freely, benefiting from the ‘wealth effect’ of rising asset values. This is enough to sustain aggregate consumption as we enter an environment of spending divergence. Much as we see a fracturing in the global economy, borne out of shifting trade policy and deglobalisation, we are seeing the same patterns within economies.

Bowmore Portfolios

These divisions are throwing up ample opportunities for active investors. Retailers who are navigating this environment and successfully targeting these resilient consumers are winning. This market dynamic is challenging the narrative that prices and income insecurity (from rising unemployment) are hitting spending. We prefer higher quality businesses at the moment, particularly given that quality as a style has underperformed in favour of AI-driven speculative growth. We have been de-risking portfolios lately, tilting away from sectors where valuations are stretched and towards pockets of value and quality, a trend we see continuing into the new year.

Source: Alpha Terminal, data as at 20/11/2025

The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance

[i] Macy’s Reports Strong Q3 2025 Financial Results – TipRanks.com