American residents, outraged by years of rising prices, are entering the 2025 holiday season ready for a “battle.” However, this season might look much more promising on paper than one might expect. How is this possible? High-income consumers continue to spend money as if they haven’t heard about the affordability crisis everyone is talking about. But middle- and low-income earners, despite stating that their financial situation greatly distresses them, are still spending money overall. This leads to forecasts for retail sales growth at stagnation or even a slight increase compared to 2024—Mastercard predicts a 3.6% growth in total holiday spending this year. However, part of this spending growth is due to higher prices. Persistent inflation, combined with already high prices, has forced people to spend more money on holidays, which is driving up spending figures. “Holiday shopping is still far from its peak, but shifts in spending are already emerging,” noted Vikki Hyman, Mastercard’s chief, in a recent report. “Inflation is expected to be a more significant driver of sales growth than actual sales volume.” This is why Black Friday spending data and the subsequent weeks may paint a somewhat embellished picture of the economy, even if the headlines do not reveal the ugly side of the economy that angers people so much. “Low-income and high-income families often live in two different worlds—and experience two different economies,” Joe Wodford, Senior Economist at the Bank of America Institute, told CNN. Strong Spending. But… The period from Black Friday to Christmas will be a test of America’s economic strength. Preliminary reports look encouraging: early holiday shoppers this year have been highly active, according to a Bank of America report released earlier this month. Over the past decade, wages have increased, and deposits in Bank of America accounts are now higher than in 2019, the financial institution reported. This contributed to an overall growth in debit and credit card spending, which in October 2025 increased by 2.4% per household compared to October 2024, marking the best month since February 2024. According to the bank, spending has been growing for five consecutive months. Home goods purchases were even more impressive—a 5.7% year-over-year increase in October. A shopper passes an aisle of Christmas decorations in a store in Houston, Texas, on November 18, 2025. A shopper passes an aisle of Christmas decorations in a store in Houston, Texas, on November 18, 2025. Ronaldo Schmidt/AFP/Getty Images But here’s the catch: this spending is measured in dollars, not in the quantity of goods. The number of transactions tracked by Bank of America has slightly decreased since January. In other words: inflation is “eating away” at American purchases—and perhaps this year’s gifts. “Consumers are clearly spending more and getting less,” Wodford noted. Some spending indicators may be distorted by tariffs. As Trump’s tariffs were alternately implemented and repealed, Americans rushed to buy electronics and jewelry to get ahead of price increases. This could ultimately lead to lower spending on these items during the holiday season—either because many have already bought what they wanted, or because price increases might deter some from making purchases during the holidays. The K-Shaped Economy Another issue with generalized holiday spending reports is that they rarely talk about *who* exactly is making those purchases. The details typically paint a less rosy picture of the economy than some headlines suggest. For example, the Federal Reserve’s latest “Beige Book,” a collection of anecdotal economic data, noted a decline in consumer spending among low- and middle-income consumers. They are increasingly running short of cash and looking for more discounts and promotions while shopping. Meanwhile, the Fed found that high-income consumers continue to spend—including on luxury items and travel. This trend is also beginning to emerge in holiday spending reports: low-income Americans continue to spend—their debit and credit card spending increased by 0.7% last month compared to October 2024, significantly below annual inflation—according to Bank of America. However, high-income Americans increased their spending more than three times faster. This is part of the so-called K-shaped economy, where those with higher earnings benefit from their investments in the stock market and rising housing values and spend their fatter wallets. Conversely, those who earn less are increasingly living paycheck to paycheck, looking for discounts—or cutting back on spending to cope with rising prices. Those earning $170,000 and above are still spending extravagantly—with double-digit growth this year, noted Heather Long, Chief Economist at Navy Federal Credit Union. But middle-income earners, especially those with lower credit scores, are spending less than before the pandemic. Bank of America found that over the year, low-income family earnings grew by only 1%. But prices, according to the September inflation report, rose by 3%. “When your bills have gone up by $300, and your salary has only gone up by $100, what are you going to do?” Wodford asks. For those under financial pressure, it is only mounting. “It’s truly a fractured economy,” said American Express CEO Stephen Squer on a conference call with Wall Street analysts last month. Squer noted that American Express customers generally spend more money than customers with other credit cards, which he attributed to Amex customers typically being wealthier. This echoes the views of executives at other consumer brands, including Target, Walmart, Home Depot, Crocs, Chipotle, and Coca-Cola, who noted certain signs of consumer hardship among those earning around $100,000 a year or less, and confident consumer spending among those earning more. This is one reason why a Fox News poll released this week showed that 76% of Americans view the economy negatively, compared to 67% in July. “I would call this a K-shaped economy on steroids this holiday season,” Long said. “If you look at overall spending and overall growth, everything looks good. But if you break it down by average spend per cardholder, the picture is completely different.”
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