By Rebecca Ungarino

Nearly a third of low-income households now live paycheck to paycheck while middle- and high-income earners show little sign of the same strain, according to a new analysis that underlines the recent caution expressed by the banking industry about Americans' diverging fortunes.

The discrepancy stems in large part from lower-income earners' slowing wage growth, wrote Joe Wadford, an economist at Bank of America Institute, which published the report on Monday. Inflation, recently rising at a 3% annual rate, has outpaced growth of 2% and 1%, respectively, in middle- and low-income after-tax wages and salaries, Wadford wrote.

The BofA report, which analyzed internal bank data, report, adds to a cautionary refrain from bank executives in recent weeks. Some have flagged signs of stress materializing among low-income consumers even as banks' widely tracked credit measures, such as delinquencies, net charge-offs, and provisions for loan losses, are in good shape.

"It's a K-shaped economy, without question," Citizens Financial Group President Brendan Coughlin said last week at a banking conference in Boston, referencing the popular term for this growing bifurcation. "You're seeing significant stability and growth in the high end, and some moderate signs of stress in the low end."

Citizens caters to the so-called mass-affluent market and wealthier customers, Coughlin noted, saying "there's almost nothing I'm worried about right now on the consumer side."

But for people with weaker credit scores, "if you were to look where any stress might be emerging, it's there," he said.

For banks, whose financial results offer a window into business and consumer activity, that divergence isn't new. It is a dynamic to which the industry is paying close attention, however, as it seeks to gauge signs of a slowing economy. Consumer spending accounts for approximately 70% of U.S. gross domestic product, and is a core engine of economic growth.

Consumers are wrestling with stubbornly high prices, elevated interest rates, and a cooling labor market, factors that all tend to hit lower-income households most. Tariffs set in motion by the Trump administration have helped push prices higher.

Some people struggling to keep up with the cost of living have also been hurt by a disruption in food-assistance benefits, due the longest-ever U.S. government shutdown, which ended Wednesday night. A separate survey, whose results were published this week by Bank of America, found a growing gap between upper- and lower-income consumers' expected spending on groceries over the next year.

Many wealthier Americans are benefiting not only from higher wages but a strong stock market, which has been fueled this year by investor enthusiasm for artificial intelligence initiatives. The S&P 500 has gained about 15% in 2025, atop a gain of roughly 23% in 2024.

Surveying the broad economy, "everything looks great," M&T Bank CEO René Jones said last week at the same conference. He cited capital investment flowing due to developing technologies such as AI.

"But underneath, you're beginning to see all these things -- around the 9% inflation that we had, which caused prices to go up, the higher interest rates, and then the tariffs coming in," Jones said. "That's having a real effect on the low-end of the consumer."

The four largest U.S. banks have generally shared similar views on consumer health in recent months.

Consumer finances are proving "resilient," with few cracks, the leaders of JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup often say, but add that they are keeping an eye on how the lower-end customer is holding up.

"The lower-end wage earner has definitely been struggling for a while," Wells Fargo finance chief Michael Santomassimo said last week. "That's not changing. It's not getting worse, though."

Bankrate, the personal finance research provider, said this month that the gap "between the haves and have-nots is widening." About half of credit cardholders use their cards "for rewards and convenience," while almost half are carrying expensive debt, Ted Rossman, senior industry analyst at Bankrate, wrote recently.

Bank of America's report this week spoke to those differences.

In 2025, 29% of lower-income households are living paycheck to paycheck, defined by the report's authors as households using more than 95% of household income on necessities such as child-care and housing.

That is up from 28.6% in 2024 and 27.1% in 2023. The trend among more affluent households they examined "barely budged."

Write to Rebecca Ungarino at rebecca.ungarino@barrons.com

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November 14, 2025 00:30 ET (05:30 GMT)

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