Wealth Effect: Early Earnings Reveal a Two‑Tier Consumer Economy

The first batch of quarterly results from U.S. consumer‑facing companies has laid bare a stark divergence in spending patterns. Coca‑Cola, 3M, General Motors and Philip Morris all reported resilient demand, but they stressed that performance depends heavily on who is doing the buying. Industrial conglomerate 3M raised its profit expectations for 2025, yet flagged weakness in the consumer and housing sectors that depressed sales of items like roofing granules. Coca‑Cola posted a jump in margins but warned that lower‑income consumers remain under pressure.

The numbers are impressive: of the roughly 15 % of S&P 500 companies that have reported so far, 87 % have beaten analysts’ estimates. LSEG data show that affluent consumers—buoyed by rising stock prices and strong job prospects—are still spending freely on higher‑priced goods and experiences. In contrast, households with moderate or lower incomes are holding back, trimming discretionary purchases and focusing on necessities.

This bifurcated landscape is clearly visible in remarks from company executives. Coca‑Cola’s CFO John Murphy told Reuters that there are “two distinctive types” of consumers: at the higher end of the socioeconomic spectrum, spending remains robust; at the lower end, consumers are under more stress. Peter Cardillo of Spartan Capital Securities said the economy is being driven by those with greater wealth—“there’s still buying power out there among the greater earners,” he noted. That spending not only boosts revenues but also lifts equity markets, creating a virtuous cycle for the wealthiest.

Cars, sneakers and tariff talk

The wealth effect is spilling into specific sectors. General Motors raised its financial outlook for 2025, lowering the expected hit from Trump’s tariffs to $3.5 billion–$4.5 billion after new credits were granted for U.S. auto and engine production. U.S. car sales rose 6 % in the third quarter, and the average price of a new vehicle surpassed $50,000 for the first time, underscoring Americans’ appetite for high‑end trucks and SUVs even as electric‑vehicle demand wobbles.

In Europe, Adidas boosted its profit outlook and raised the price of its iconic Samba sneakers from $90 to $100 on its U.S. website. The company’s shares rallied as investors bet that demand for its high‑margin footwear remains strong. These moves highlight how companies are testing the limits of pricing power in a high‑inflation environment.

Market reaction and economic backdrop

Despite the divergent fortunes of consumers, equity markets have held up. Stocks were mixed on Tuesday, but companies reporting results mostly rallied. That resilience reflects both strong earnings and expectations of an imminent Federal Reserve rate cut. At the same time, the broader economic picture remains hazy: the government shutdown continues to delay official data releases, leaving the Fed to operate in a data blackout. Inflation is still above target, mortgage rates remain above 6 % and tariffs continue to put upward pressure on prices.

The eSNAP dashboard continues to rate the U.S. economy in moderate risk territory, with key indicators largely unchanged: unemployment at 4.3 %, inflation at 2.94 % and GDP growth running at 3.8 %. Consumer sentiment remains fragile, and the savings rate is a low 4.6 %.

What it means for households

For everyday Americans, the wealth effect translates into a two‑speed economy. Those with more assets and higher incomes benefit from rising markets and can continue to spend on homes, vehicles and discretionary goods. Families living paycheck to paycheck, however, are feeling the squeeze from higher food and housing costs, rising credit‑card debt and limited savings. The average mortgage rate above 6 % makes homeownership less attainable, while the average cost of a new car topping $50,000 puts more purchases out of reach.

Policymakers and investors are watching closely. If affluent consumers pull back—as they might if market gains reverse or tax changes bite—the support they have provided to both corporate earnings and overall growth could fade quickly. Until then, the U.S. economy will continue to be driven by a relatively small but powerful cohort at the top.

Conclusion

This earnings season has made one thing clear: the U.S. consumer is not monolithic. While many companies are benefiting from strong demand and beating expectations, the underlying story is one of widening inequality in spending power. As long as high‑income households keep opening their wallets, corporate profits and stock prices may hold up. But with inflation still too high, the government shutdown delaying data and tariffs weighing on costs, it remains to be seen how long the wealth effect can prop up the broader economy.