Wage growth for middle-income households showed some weakness in January, while that of lower- and higher-income households remained steady, the Bank of America Institute said Thursday (Feb. 5).
Middle-income households’ after-tax wage growth dropped to 0.4 percentage points below its second-half 2025 average during a month in which that of both lower- and higher-income households were within 0.1 percentage points of the average, according to the Institute Employment Report for January.
“This relative softness may unwind, but if it persists it may lead to downside risks to consumer spending once the expected lift from tax refunds is over,” David Michael Tinsley, senior economist at the Bank of America Institute, wrote in the report.
January also saw a continued gap between the wage growth of lower- and higher-income households, according to the report.
Lower-income households’ after-tax wage growth was 0.9% year over year in January, while that of higher-income households was 3.7%. The 2.8 percentage point gap between the two was close to the average 2.6 percentage point gap seen in the second half of 2025, per the report. Middle-income households’ after-tax wage growth was 1.6% in January.
Tinsley wrote in the report that “while the gap between higher- and lower-income after-tax wage growth is persistent, it is not showing obvious signs of increasing.”
It was reported Thursday (Feb. 5) that companies are adjusting their strategies to meet a market that is increasingly divided by income levels, with some consumers continuing to buy luxury items while others struggle with rising prices.
The PYMNTS Intelligence report “Financial Fragility in the Middle: How Income and History Shape Consumer Risk” found middle-income households make up a rapidly growing share of the 70% of U.S. consumers who report living paycheck to paycheck.
The Bank of America report released Friday also included data that showed “a stabilizing, and possibly re-accelerating, labor market,” Tinsley wrote.
January saw payrolls rise 0.8% year over year, while the growth in the number of households receiving unemployment benefits dipped slightly to 9.0%, according to the report.
The Labor Department’s Bureau of Labor Statistics reported Jan. 29 that jobless claims ticked down slightly during the week ended Jan. 24. Initial unemployment claims totaled 209,000, which was 1,000 fewer than the previous week.
Human resources and payroll solutions provider ADP said Wednesday (Feb. 4) that January was a “lackluster month for hiring,” as the private sector added 22,000, down from the 37,000 added in December.
