A growing divide in consumer behavior is sending warning signals through the U.S. economy. Despite steady aggregate spending, the Federal Reserve and corporate leaders are increasingly acknowledging that economic resilience is being propped up by wealthier households, while younger and lower-income Americans are pulling back.

Federal Reserve Chair Jerome Powell addressed the imbalance following the central bank’s latest rate cut, noting that consumer spending “has defied a lot of negative forecasts,” but that the strength is not evenly distributed. “It may be mostly higher-end consumers,” Powell said, underscoring how recent economic activity has been concentrated among those benefiting from rising asset prices and stock market gains.

A Split Economy Takes Shape

The uneven dynamic comes at a time when economists credit artificial intelligence investment and data center spending with sustaining growth and averting a potential recession. Those gains, however, have disproportionately benefited households most exposed to equity markets, leaving lower-income consumers with little of the upside.

This divergence is becoming increasingly visible in corporate earnings. Chipotle Mexican Grill (CMG) CEO Scott Boatwright said this week that the company is seeing a “meaningful pullback” among younger and lower-income customers, who represent about 40% of total sales.

“Since early this year, as sentiment declined, frequency dropped across all income levels,” Boatwright said. “But the gap has widened, with low- to middle-income guests further reducing visits.”

That pullback hit Chipotle’s shares, which fell nearly 20%, and analysts say the trend reflects broader caution among consumers squeezed by inflation, student loan repayments, and stagnant wage growth.

According to the Bureau of Labor Statistics, the unemployment rate for Americans aged 20 to 24 rose to 9.2% in August, the highest since early 2021. BTIG analyst Peter Saleh described the drop-off in younger consumers as “a little concerning,” noting that it appeared “sudden and sharp” during September and October.

Broader Signs of Consumer Stress

Other data reinforce this bifurcation. TD Securities reported this week that its proprietary surveys reveal a “sharply divided economy,” with high-income households showing record-low intentions to cut spending, while lower- and middle-income groups remain mired in “persistent economic anxiety.”

The Conference Board’s consumer confidence index fell again in October, reflecting growing worries over employment, inflation, and access to credit. Powell acknowledged these pressures, warning that while headline labor data remain firm, “unevenness” beneath the surface could become more visible in coming months.

“We’re watching very, very carefully as more companies announce hiring freezes or layoffs,” Powell said, citing recent cuts at Amazon (AMZN), UPS (UPS), and other major employers. He added that while broad deterioration in employment hasn’t yet appeared in official data, anecdotal evidence suggests that economic bifurcation is deepening.

A Fragile Foundation for Growth

The U.S. economy has relied heavily on consumer resilience to sustain growth amid high interest rates and geopolitical uncertainty. But with spending increasingly concentrated among affluent households, the strength of that foundation may be at risk. Lower-income consumers — who drive much of the discretionary and services economy — are showing fatigue just as corporate layoffs and cost pressures intensify.

“Lower-income Americans are pulling back while higher earners continue to spend,” Powell warned. “And so we think there’s something there.”

If this divide persists, economists say, it could mark the early stage of a slowdown that official data have yet to capture — one where record stock gains mask the erosion of broad-based demand.