By Shivansh Tiwary and Juveria Tabassum
Feb 11 (Reuters) - America's consumer economy is pulling in opposite directions, a gulf increasingly apparent in C-suite commentary, with premium brands profiting from well-off customers while value-focused firms battle restraint from cash-strapped households.
Companies ranging from Ralph Lauren, Tabby handbag maker Tapestry, and American Express, to airlines including United and Delta Air exceeded expectations in their results for the most recent quarter as
their affluent consumer base spends freely on high-margin goods and services.
Meanwhile, PepsiCo, Kraft Heinz and PayPal have all flagged pressure from lower-income consumers seeking value and deferring purchases to stretch budgets.
The dynamic reflects a deepening K-shaped recovery in the United States, with spending power concentrated at the top, and C-suites are keen on capturing that wealthier consumer.
The highest-earning 10% of households now account for nearly half of all U.S. consumer spending, according to a Moody's Analytics report based on federal data.
About 30 years ago, those earners were just over one-third of U.S. consumer spending.
Some are concerned that middle-income consumers are starting to fall behind as well. "Middle-income households' wage growth appears to have softened, even as higher-income gains remain resilient," Bank of America analysts said.
Behind the split is a familiar arithmetic. Inflation has hit lower-income households harder because they devote a bigger share of their budgets to necessities such as food, gasoline and rent, leaving less room for discretionary purchases and little buffer for unexpected expenses.
The University of Michigan's Consumer Sentiment Index increased to 57.3 in February, the highest reading since last August. Still, the index remained about 20% below its January 2025 level.
"Sentiment surged for consumers with the largest stock portfolios, while it stagnated and remained at dismal levels for consumers without stock holdings," said Joanne Hsu, the director of the Surveys of Consumers.
COMPANIES SHIFTING FOCUS
U.S. airlines are a prime example of an industry where the big players are shifting their profit engines toward the front of the plane, by leaning on corporate travel, loyalty programs and perks like lie-flat seats and champagne.
"The strength in the consumer sector is at the higher end of the curve," Delta Air CEO Ed Bastian said. "The lower-end consumer is struggling. We fortunately do not live there."
Companies that serve the mass market are pulling out all stops to defend market share.
"Consumer sentiment has worsened, industry trends have softened and there is increasing volatility in geopolitical landscape," Kraft Heinz CEO Steve Cahillane said on Wednesday, after the company reported muted 2026 earnings.
PepsiCo cut prices by up to 15% on snacks such as Lay's and Doritos after consumer backlash against several rounds of price hikes.
"We've spent the past year listening closely to consumers, and they've told us they're feeling the strain," Rachel Ferdinando, PepsiCo Foods U.S. CEO told Reuters.
Newell Brands also cut prices on certain brands last week and CEO Chris Peterson said the pullback in spending was particularly severe on consumers aged 18 to 24 years who have cut spending on kitchen storage and stationery.
Peterson and hotel operator Marriott's CFO Leeny Oberg were among executives who expected little change in the K-shaped pattern in the near term.
"The gap in spending between the well-to-do (the top 20%) and lower- and middle-income households has never been wider, and it continues to increase," said Mark Zandi, chief economist at Moody's Analytics.
WAGE GROWTH DISPARITY
Bank of America's January deposit data showed after-tax wage and salary growth lagging for both lower- and middle-income households, rising just 0.9% and 1.6% year over year, respectively, versus 3.7% for higher-income households.
"While the sizeable gap between lower- and higher-income wage growth isn't widening further, it also isn't shrinking — which helps explain why lower-income spending growth continues to lag," BofA analysts wrote in a note.
American Express, whose cardholders skew wealthier, described demand for premium products as "very strong." In contrast, PayPal flagged pressure across its retail merchant base, particularly among lower- and middle-income consumers.
(Reporting by Shivansh Tiwary, Juveria Tabassum and Manya Saini in Bengaluru; Editing by Alan Barona)
