The Great Consumer Squeeze Of 2025

The economy, according to the experts, is doing just fine. The stock market is breaking records. Unemployment is low. The White House and the Federal Reserve keep telling us that inflation is cooling, wages are rising, and everything is stabilizing.

Try telling that to the people in the grocery store checkout line.

For millions of Americans, nothing feels fine.

Gas is still expensive. Insurance costs are through the roof. Credit card debt has hit a record-breaking $1.3 trillion, and if you’re carrying a balance, you’re getting smacked with an average 22% interest rate. Families who used to feel middle class now feel like they’re living paycheck to paycheck. And the people who used to feel rich? They’re cutting back too.

Consumer spending, the engine of the U.S. economy, is slowing down across all income levels. People aren’t spending like they used to, and that’s starting to ripple through businesses that once thought they were untouchable.

The Rich Aren’t Spending Like They Used To

When wealthy consumers start penny-pinching, something is wrong.

Luxury brands that were thriving just a year ago are now feeling the pinch. LVMH, the global luxury powerhouse behind brands like Louis Vuitton and Tiffany, reported that sales growth has slowed dramatically. According to McKinsey & Company, luxury sales have dropped by 9.3% since last year.

Even at Costco, where the wealthier customers used to splurge on high-end meats, they’re now swapping ribeye for ground beef. A Costco executive recently noted that even shoppers with six-figure salaries are “trading down” in ways the company hasn’t seen before.

People who were once happy to book lavish vacations and drop thousands on luxury watches are suddenly second-guessing their purchases. They have the money, but they don’t feel as comfortable spending it.

Middle-Class Americans Are Feeling the Squeeze

The Federal Reserve’s latest report found that 57% of Americans earning between $75,000 and $150,000 feel worse off financially than they did last year. That’s despite the so-called “wage growth” and low unemployment.

Jason and Melissa, a couple in Texas with a combined household income of $140,000, should be doing fine. A few years ago, they were able to comfortably pay their mortgage, take a family vacation every year, and put money away for savings.

Now?

Their home insurance just jumped 30% overnight. Their grocery bill is up by 20% compared to last year, even though they’re buying the same staples. Their summer vacation? Canceled.

Melissa put it simply: “We make more than both our parents did, but it doesn’t feel like we’re getting ahead.”

They’re not alone.

The middle class is getting eaten alive by rising costs, but unlike lower-income earners, they don’t qualify for government assistance. Their wages aren’t keeping up, but they also don’t get any relief.

Lower-Income Families Are in Survival Mode

For the working class, things aren’t getting tight—they’re getting desperate.

Retail giants like Walmart and Dollar General report that customers are buying in smaller quantities because they can’t afford to buy in bulk anymore. Walmart’s CEO Doug McMillon recently said that by the end of the month, lower-income shoppers are shifting to smaller pack sizes—not by choice, but out of necessity.

Fast-food chains are struggling with the same issue. McDonald’s, the go-to for cheap meals, has seen sales slow down among its lower-income customers. That’s right—fast food is now too expensive for the people who rely on it the most.

At the same time, Americans are borrowing just to survive.

Credit card balances are at a record $1.3 trillion, and the interest rates on those balances are getting worse. The average credit card APR is now 22%, and some cards are charging people nearly 30% just to carry a balance.

This isn’t just bad budgeting. This is what happens when inflation doesn’t come down, but wages don’t keep up.

Inflation May Have “Slowed,” But Prices Never Went Down

The biggest scam of 2025 is the idea that inflation is under control.

Yes, inflation rates have cooled from their 2022 and 2023 highs, but that doesn’t mean prices went back down.

Gas was $5 a gallon, then it dropped to $3.75, and now we’re supposed to be relieved?

Eggs were $8 a carton, now they’re $5, and we’re supposed to feel like we’re winning?

This is how inflation plays mind games with people. Prices spike, then come down slightly, but never to where they were before. Over time, people adjust to the new normal of high prices, but their paychecks never stretch as far as they used to.

According to the Bureau of Labor Statistics, wages rose by 4% last year, but essential costs like food, housing, and insurance went up by even more.

That’s why the economy looks fine to the experts but feels completely broken to the people living in it.

Businesses Are Already Feeling the Consumer Pullback

When consumers stop spending, businesses suffer. It’s already happening.

Airlines are reporting weaker-than-expected ticket sales for summer 2025. Delta and United both admitted that demand is softening, especially for premium and business-class travel.

Retailers are bracing for a tough year. Macy’s and Kohl’s recently warned that foot traffic is declining, as shoppers are more cautious with their spending.

Restaurants are seeing fewer diners, even at places that used to have lines out the door. Casual dining chains are struggling because people are cutting back on eating out—not just to save money, but because they don’t have extra money to spend.

When businesses start making less, layoffs come next. If this trend continues, we’ll see companies start slashing jobs to protect their bottom lines, which could trigger a slowdown in hiring.

If wages finally rise faster than inflation, some of this financial pressure might ease. But if the Federal Reserve keeps interest rates high for too long, it could push businesses to slow down hiring, cut jobs, and make things even worse.

The economy may look strong on paper, but in the real world, people are struggling. And if consumer spending keeps slowing, this so-called “strong economy” might not stay strong for long.