Not sure if this is the case for everyone, but checking my credit-card statement has become a strange exercise these days.
I’ll look down the list and see gas, groceries, a couple of ordinary errands, and maybe dinner out. Nothing huge, but the total can make it feel as though I’ve been living a lot larger than I actually have.
That’s the weird thing about spending more money. It doesn’t necessarily mean you’re getting more for it.
Bank of America’s latest economic report shared with me captures that contradiction perfectly. Americans are still opening their wallets, and the bank says the economy is holding up surprisingly well.
In fact, their data suggests that the paychecks are improving for some households that have been falling behind. However, beneath those upbeat numbers, the picture gets a lot more complicated.
Everyday expenses are absorbing more dollars, some retailers are losing ground, and Bank of America thinks the Federal Reserve might need to raise interest rates again.
Interestingly, a strong economy on paper sounds like good news. So why can it still feel so expensive?
Bank of America finds gas spending up 25% as other purchases weaken
Bank of America isn’t seeing an economy running out of steam.
In its latest US Economic Weekly report, economists bumped their estimate of Q3 growth to a 3.6% annualized pace. Inflation-adjusted consumer spending was tracking at a 3.5% annualized pace, hardly the picture of Americans shutting their wallets.
However, the bank’s own card data tells a more complex story about where those dollars are going.
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For the week ended Oct. 10, spending per household on Bank of America credit and debit cards climbed 5.1% from a year earlier. That looks healthy until you start breaking down the receipts.
Gas-station spending jumped to 25.1%. Spending, excluding gasoline, rose by a more modest 4%. Meanwhile, department-store purchases fell 5.1%, and furniture spending declined 4.7%. Online retail, by contrast, jumped 7.7%.
Based on my calculation, that puts the gap between gasoline and department-store spending growth at a remarkable 30.2 percentage points.
Let’s put that in perspective for an ordinary family.
A bigger bill at the pump doesn’t mean there’s more gas in the tank. And a higher credit-card total doesn’t automatically translate into more groceries, clothes, or furniture coming home.
That said, it’s important to note that the BofA’s figures reflect its own cardholders rather than every American household.
Moreover, not all retailers are struggling. General-merchandise spending rose to 5.7%, another sign that consumers are making different choices about where to shop.
Lower-income wages are recovering, but household debt tells another story
The more encouraging part of the report was that the bank believes the gap between higher- and lower-income Americans is narrowing, at least when it comes to paychecks.
In September, after-tax wage growth for lower-income households reached 4.5% year over year, according to the bank’s account data. Middle- and higher-income households saw a 3.8% increase. That’s a 0.7-percentage-point advantage for families that have fallen behind.
Some improvement points to lower tax withholding, not necessarily bigger raises. But BofA also points to stronger hiring and broader job growth. Spending by lower-income households has picked up, too, suggesting consumer demand isn’t resting entirely on wealthier shoppers.
That’s good news, but it’s important to understand that it isn’t the whole picture.
Stock-market gains continue to favor affluent families, who own more financial assets. A household watching its investments appreciate has a cushion that someone relying almost entirely on wages may lack.
The Federal Reserve’s 2025 Survey of Consumer Finances underscores that divide. BofA notes that the overall debt-payment-to-income ratio rose two percentage points to 11.9%. Among families with debt, the share spending more than 40% of income on debt payments climbed from 8.4% to 11.1%.
Housing makes matters even tougher. The median home was valued at more than 4.5 times median family income.
To me, a raise can look much bigger on paper than it feels after bills arrive. More take-home pay helps, but loan payments and everyday expenses can absorb the improvement.
That’s why improving wages and financial security aren’t necessarily the same thing. Moreover, BofA sees another potential obstacle ahead: more Federal Reserve rate hikes.
BofA expects 2 more Fed hikes as Americans struggle with borrowing costs
The “costly catch” is that a stronger economy may give the Federal Reserve room to raise interest rates.
In its Oct. 16 report, BofA maintained a forecast for two more quarter-point rate hikes, one in October and another in December. That would put the federal funds target range at 4.25% to 4.50%, where the bank expects it to remain through 2027.
At the heart of the issue is that with growth remaining resilient, hiring is holding up, and inflation hasn’t cooled fast enough.
Consumer prices increased 0.6% in September, pushing annual inflation to 3.7%, up from 3.4% in August, as reported by Reuters. In particular, wholesale prices surged an even sharper 1.3%, the biggest monthly increase since March 2022.
Speaking at the IMF meetings in Bangkok on Oct. 16, Fed Chair Kevin Warsh acknowledged that central bankers everywhere were hearing the same thing about “the surge in prices.”
Higher rates put pressure on variable-rate debt, new-car financing, and credit cards. Mortgage rates don’t mechanically follow the Fed, and existing fixed-rate mortgages wouldn’t change.
Moreover, BofA acknowledges the Fed could raise rates more slowly. That said, I’ll be watching the Oct. 27-28 meeting, inflation, employment, and consumer spending.
The economy might be strong enough to withstand higher rates. The question is whether families are.
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