In what may be among the starkest signs yet of accelerating consumer distress, middle-class shoppers are so far expressing extreme caution and serious signs of pulling back spending — and big-name retailers are starting to sound alarms. Home Depot turned in a practically flat quarter, with U.S. comparable sales up only 0.1 %, even though the company typically leans heavily on America’s swath of middle-income homeowners.
Home Depot’s executives said the uncertainty among consumers and a slow housing market were weighing more heavily on purchases of home-improvement projects. As the chief executive, Ted Decker, said, “A forecasted demand acceleration in the third quarter did not materialize.” The warning sign: if historically important buyers, like middle-class households and homebuyers, are buying less, the fallout for general retail could be severe.
This pullback isn’t isolated. Chains including McDonald’s, Chipotle and Cava have been trumpeting such trends — higher-income and even middle-income consumers are trading down, ordering extra food or forgoing items entirely. “Value is important for everybody, whether you’re high income, low income or in the middle,” McDonald’s CEO said recently. Analysts say this suggests more than a phase — it can be the rough shape of a larger slowdown in consumption.
Drilling into the data shows why the alarm is mounting. The University of Michigan’s consumer sentiment index dropped to 50.3 in November — its lowest level since 2022 — while inflation expectations ticked higher, reaching 4.7 percent for the year ahead. Layoffs are, meanwhile, coming faster and more furious: Employers announced 153,074 job cuts in October, the most for that month in more than two decades. Job security is hazy and monthly bills are still high, so middle-class households are starting to tighten the reins.
What it means for retailers is uncomfortable: For decades, they’ve built strategies on the expectation of solid spending by the middle class. When that base wobbles, it disrupts such a large swath of everything from big-ticket purchases (home-improvement, appliances) to discretionary spending (dining out, apparel). Home Depot had already seen a decrease in remodeling projects, down 0.8 % since last year, one analyst said. The ripple effect: slower growth, narrower margin and investments being rethought.
For consumers, the view is mixed. On the one hand, being cautious in a high-inflation, high-rate world is prudent. On the other hand, if everyone cut back at once, businesses feel it — and that can mean job losses or diminished inventories of merchandise in stores, or higher prices because they cut their scale. Some economists worry the country may be in for a retail-led recession, set off not by a shock but by a softening of spending among many moderate-income households.
Not just low-income families but also the so-called “core middle” are likely to be the most vulnerable. These are middle earners in the 30-70 percent gross income bracket — historically the heart of American retail though increasingly not. When these earners cut back on consumption, it’s more difficult for the economy to make up elsewhere.
A couple caveats: flat sales isn’t the same thing as overnight collapse, and not all retailers cater to the same demographic. But the consensus among analysts: this isn’t just yet another deferred purchasing cycle — it’s a strategic behavioural change. “There are signs of real distress on the way,” one consumer-retail expert said.
In brief: the headlines about some poorly performing retailers disguise a richer story. The American middle-class shoppers — long the ballast for the economy — are finally starting to lose faith and fast spreading their funk across the place where they do much of their shopping. For retailers and economists, it’s a time to pay attention.
