A lot has been going on in the spending and consumer sides of the economy lately. Later this week, there will news on how a bunch of mega-retailers are doing, with earnings reports from Home Depot, Lowe’s, Target, and Walmart.

Retail sales overall held up pretty well in July — up 0.5% after a jump almost double that in June. 

But the news on the shoppers doing that spending is not so good. Consumer sentiment, as measured by the closely-watched survey from the University of Michigan — took a sharp dive in early August, down 5%, the first fall in four months. And it wasn’t good to begin with. 

So, how to make sense of the apparent disconnect — how consumers say they feel, how they actually spend?

A dollar spent at a store adds just as much to GDP — whether it’s a rich or poor person doing it.

But it turns out, differences in spending levels between income cohorts — high, middle, and lower-income households — might help explain why consumer spending overall has held up so well.

Economist Dhiren Patki at the Boston Fed just published a paper analyzing credit card charges by income.

“There’s a lopsidedness in terms of the extent to which high-income consumers drive overall spending,” Patki said.

Patki — whose views do not represent the Boston Fed — said the top one-fifth of households, making $121,000 or more a year — have increasingly been propelling the consumer economy, while lower-income consumers have fallen further behind. 

“The total spending attributable to higher-income households is—in our data it’s 7-to-1 greater — than the total spending attributable to lower-income households,” Patki said.

For years, lower-income households have been racking up credit card debt, and it’s now significantly higher than before the pandemic. 

By contrast, the top-earners: “Their credit card debt has not yet caught up to 2019 levels,” Patki said. “And those high-income households now have more room to spend the credit they have available.”

Also, many higher-income folks have sources of income other than a paycheck, said Kayla Bruun at Morning Consult. 

“They can benefit more from things like — the stock market has been doing pretty well this year, giving them a little bit of that wealth effect to spend more,” Bruun said.

Here’s the thing, though. When the divergence in spending by income started growing back in the pandemic, higher-income folks were feeling a lot better about the economy than other consumers. 

Now, said Joanne Hsu, director of the University of Michigan consumer surveys, all income cohorts are about equally pessimistic.

“Higher-income consumers are very worried about the trajectory of inflation, about business conditions, unemployment, the negative impact of tariffs on the rest of the economy,” Hsu said.

And Hsu warns, if they start to pull back, it’s hard to see how consumer spending and the overall economy can keep growing.