Consumer spending increased in the third quarter as Americans became a bit more willing to spend up for that travel adventure or AI-enabled phone, although everyone wasn’t quite ready to join in.

Gross Domestic Product (GDP) data released last month showed a 3.7% advance in core consumer spending, with demand for healthcare, prescriptions, cars, dining, and hotel stays spurring the growth.¹

But a deeper dive into that data showed the consumer spending bump was driven narrowly by higher-income households while other consumers have grown more price sensitive. Other metrics, such disposable personal income, showed only slight gains.²

The third quarter 2024 earnings and outlooks of companies including JPMorgan, Home Depot, and Travelocity confirmed stable but cautious spending by consumers. Companies are watching for signs that big-ticket spending and consumer credit will take off as inflation cools and the Federal Reserve eases interest rates.

Bank proxies

Investors closely watch the nation’s largest retail banks—JPMorgan, Wells Fargo, Bank of America, and Citigroup — as dependable proxies of consumer health.³ The largest four banks hold about one-third of U.S. consumer deposits and have access to everyday credit card and bank account transactions that touch much of the broader economy.⁴

Consumer spending is holding up, but loan demand remains weak for much of the banking sector. Wells Fargo CFO Mike Santomassimo called debit and credit card spending “quite solid” during a third quarter earnings call. He also said that lower-income customers continue to feel high prices and inflation acutely.⁵

JPMorgan Chase Chief Financial Officer Jeremy Barnum painted a similar picture of solid spending, if not “a little bit boring” as things normalize after the Covid-19 pandemic. He did note a boost in travel and entertainment spending, as more Americans dine out or book “cruises that they hadn’t done before.”⁶

A new normal for travel?

The travel industry might be one of the best examples of price-conscious consumers, or at least picky ones. The post-pandemic travel boom seems to be over and demand has normalized.⁷

Tripadvisor had flat revenue overall but saw robust growth in its specialty brands. Viator — which books tours and excursions for travelers — saw 10% revenue growth. Tripadvisor’s restaurant-booking platform, the Fork, had a 17% surge in revenue.⁸

A recent Empower survey found that 57% of American were willing to pay extra for dining and food experiences during vacations. Dining was the top spending priority, followed by experiences, events, and adventures in second place with 47% of respondents. Just 10% of survey participants want to fork over extra cash for air-travel upgrades.

That could be one reason for thinner margins and mixed financial results in the airline industry after the pandemic travel boom.  Labor costs, fuel prices, and supply chain-inflation have also hurt⁹ the carriers’ bottom lines, with budget carriers feeling the squeeze more acutely.¹⁰

Ticket prices have also surged with inflation, but that’s not bad news for all carriers. Delta Air Lines and United Airlines see a path to higher profits through premium customers willing to pay more for wider seats or better in-flight meals.¹¹

In addition to higher-wealth leisure travelers, airlines are responding to an increase in business travel, which lagged during the pandemic. Some carriers are reconfiguring cabins or flying larger planes to accommodate more premium seating for those travelers.¹²

Things have been a bit more balanced in the hotel and lodging industry. While top-line earnings and fourth-quarter projections were mixed, Marriott, Choice Hotels, Wyndham and others also saw third-quarter gains in RevPAR, a key industry metric that measures revenue per available room.¹³

Executives said the hotel industry has been buoyed in recent months by strong group travel and luxury hotel demand. IHG Hotels & Resorts CFO Michael Glover said the industry is demonstrating both stability and normalization.¹⁴

Read more: 5 culinary capitals where the dollar takes you far

Mounting debt

While spending is stable, consumers remain burdened with credit card debt. Americans’ total credit card balance reached nearly $1.2 trillion¹⁵ in the third quarter of 2024, the highest since the New York Fed began collecting the data in 1999.¹⁶

Economic challenges have also compromised Americans’ ability to prepare for spending emergencies, such as a job loss or a big medical bill. A recent Empower survey revealed that 1 in 5 (21%) Americans have no emergency savings for an unexpected event, while 2 in 5 (37%) couldn’t afford an emergency expense higher than $400.

Stretched borrowers are due some relief as inflation cools and the Fed responds. The federal funds rate was cut by half a percent in September, followed by another quarter-point cut earlier this month to the 4.50% to 4.75% range.

While it’s now cheaper for banks to borrow money, the path toward lower consumer rates on mortgages, home equity lines, credit cards, and other types of consumer credit is more gradual and complicated. Rates also depend on a host of personal factors, like credit scores. ¹⁷

Mortgages are a good example. When setting fixed rates, mortgage lenders take the Fed’s moves into account, and several other factors like the 10-year Treasury yield, inflation, and investor appetite for mortgage-backed securities.¹⁸

Waiting for the big spend

Home Depot reported that consumers are deferring big purchases as they wait for lower rates on mortgages and other loans. The company saw improving sales in the third quarter but said customers are holding back on remodeling projects. Executives said pent-up demand is waiting to be “unlocked.”¹⁹

It was a similar story at Lowe’s, which did better than analysts expected for the quarter.²⁰

Walmart saw strong sales growth and earnings, driven mainly by higher-income shoppers earning more than $100,000 a year.²¹The retailer’s new Bettergoods food brand — which features organic, plant-based and gluten-free products — has helped it retain higher-income shoppers who flocked to its stores during peak inflation.²²

Read more: Are dupes the new quiet luxury?

Amazon also saw a continuing trend of price-conscious consumers on the hunt for deals, CEO Andy Jassy said. The company’s retail growth in the third quarter was largely driven by lower-priced “everyday” items in the health, beauty and personal care categories, executives said during an earnings call.²³

The retail giant just launched Amazon Haul, a new online storefront that features affordable clothes, electronics, home goods, and other items — all priced at $20 or less.²⁴

No holding back on artificial intelligence

There’s little sign of spending restraint for the company’s cloud computing platform, Amazon Web Services, which saw a 19% surge in sales. AWS and other units are benefiting from “once in a lifetime opportunities” and demand for generative artificial intelligence, Jassy said.²⁵

Increased AI demand has in turn created a spending boom by consumer-facing tech companies. Although top-line earnings were mixed, executives at Apple, Facebook parent Meta, and Alphabet’s Google, all touted progress incorporating AI into their operations and deploying new, user-friendly AI features like chatbots.²⁶

Chip-maker Nvidia has benefitted greatly from that spending boom.²⁷ It posted very strong third quarter earnings as AI-chip demand soared in several areas, including graphic-processing units for computers and gaming consoles.²⁸

Apple is seeing direct consumer demand for AI products after reversing a recent iPhone sales slump. The company is betting on continued gains with the new iPhone 16, which was built with AI in mind, along with AI-friendly software upgrades for older models.²⁹

Apple said that customers are adopting its latest iOS 18.1 update at twice the rate of its predecessor.³⁰ The upgrade features AI enhancements such as writing and summary tools, enhanced photo editing, and email summaries. There’s also a “more natural and conversational” version of Siri, courtesy of AI.³¹