In the early months of 2025, the American consumer landscape appears to be divided into two distinct groups. While lower-income individuals are tightening their belts and focusing on essential purchases, the wealthy continue to indulge in luxuries such as dining out and luxury travel. This dichotomy is evident in the first-quarter results from U.S. credit card lenders, reflecting the impact of President Donald Trump’s trade policies on consumer sentiment.
The ripple effects of Trump’s trade policies have raised concerns among investors and economists about the potential spillover into the real economy. Early signs of stress are visible among economically vulnerable groups, such as lower-income card users. Synchrony, a provider of store cards for retail brands like Lowe’s and T.J. Maxx, reported a 4% decline in spending in the first quarter of the year. In contrast, companies like American Express and JPMorgan Chase, which cater to wealthier customers with higher credit scores, saw an increase in spending during the same period.
Despite the overall resilience of the consumer sector, there is a noticeable shift in spending patterns. According to Synchrony CEO Brian Doubles, lower-income card users began tapering their spending about a year ago, reducing discretionary and big-ticket expenses due to inflation eroding their purchasing power. This trend is further underscored by the rising number of credit card users making only minimum monthly payments, reaching the highest level in 12 years.
Credit card lenders catering to wealthier customers have remained relatively insulated from concerns about tariffs, inflation, and a potential recession. The divide between high-end and low-end consumers is evident in the performance of companies like Citigroup, where spending on retailer cards declined while spending on the bank’s own branded cards increased. Consumer behavior has shifted towards essential purchases and away from travel and entertainment, driven by fears of price hikes due to tariffs.
While this shift in consumer behavior may boost spending in the short term, it raises concerns about future demand. As Bread Financial CFO Perry Beberman noted, consumers are prioritizing purchases like electronics and home furnishings over discretionary items like big-screen TVs, anticipating the impact of inflation on their purchasing decisions. The evolving consumer landscape presents a challenge for businesses and policymakers alike, as they navigate the uncertainties of trade policies and economic conditions in the coming months.
