When food prices began rising rapidly at the end of last year, American households spent more on groceries. When gas prices spiked this spring, they spent more on fuel.

After all, what choice did they have?

But with inflation cooling — at least for now — and the moribund labor market showing some newfound life, there are hints that more Americans are taking the opportunity to spend more on what they want, not just what they have to buy.

Retail sales data from the Census Bureau on Thursday provided the latest evidence. U.S. retail and food services sales were up a solid 0.2 percent in June, a slight deceleration from April and May numbers, but it builds upon a steadying trend. Spending in discretionary categories like furniture stores, electronics retailers and restaurants all rose.

For the second quarter as a whole, sales were up 6.4 percent from a year earlier, before adjusting for inflation.

For wealthy Americans, spending freed-up cash on hand is nothing new. Buoyed by surging stock portfolios, the rich have been shelling out for first-class plane tickets, fancy meals at restaurants and other luxuries. The highest-earning top third has helped keep overall consumption robust despite high interest rates, tariffs and other economic headwinds.

Many other households, however, have been struggling just to maintain their standard of living amid rising prices and slowing wage growth. Debt levels have soared in recent years, and saving rates have tumbled. The challenge became even more acute when gas prices jumped this spring, leading inflation to outpace wage growth.

Now, though, there are tentative signs that discretionary spending may be rising among lower and moderate income households as well. The government doesn’t break down spending by income level on a monthly basis. But data from private sources points to early evidence of a turnaround.

Credit card data from Bank of America shows that spending in recent weeks has risen faster for lower-income households than for higher earners. And they were spending more not just on essentials but also on discretionary items like restaurant meals and travel.

“What was really notable was how broad it was,” said Liz Everett Krisberg, head of the Bank of America Institute. “It wasn’t just one group — it was all of the income groups. It wasn’t just one category — it was retail and services. It was discretionary and necessity spending.”

The respite for consumers may prove short-lived if the U.S. conflict with Iran deteriorates further. That is already showing up at the pump, with gas prices creeping back up to $3.94 per gallon on average, according to the AAA motor club. Economists warn that if oil prices return to their previous highs, then they will once again filter through to the cost of food and other goods.

But after facing five years of elevated inflation, consumers have become more adept at navigating prices. Even as they are forced to pay more for essentials like rent, food and gas, many families have found ways to make room for elective, or “discretionary,” purchases as well, said Michelle Meyer, chief economist of the Mastercard Economics Institute.

“Even within that basket of necessities, consumers have made shifts so that they can still make room for discretionary spending,” she said. “You buy more in bulk, you go to restaurants less. Consumers are trying to demand the best value that they can.”

Retail analysts make sense of how much spending is driven by voluntary, optional purchases and how much is consumption of essentials by splitting data into discretionary and “non-discretionary” purchases. But it can be tricky business.

Rent or mortgage payments, groceries, utilities like electricity and water, insurance, car payments and taxes are clearly musts. But other categories, like clothes and car purchases, are closer calls, said Breyon Williams, the chief economist at the Groundwork Collaborative, a consumer watchdog group.

Priscilla Thiagamoorthy, a senior economist at BMO Capital Markets, a financial firm, estimates that about 35 percent to 45 percent of retail sales are discretionary, “with the remainder tied more closely to necessities.”

She added that, in recent numbers, “the strength in discretionary categories means households are doing more than simply paying higher prices for necessities — it points to underlying consumer demand remaining reasonably healthy.”

A hot labor market, in which jobs are plentiful and wages are rising, has historically been the best way for average workers to consistently get ahead. When the job market faltered last year, economists warned that households may have little choice but to pull back.

More recently, though, the labor market has shown signs of renewed strength. Job growth has picked up this year. Wage growth for people who change jobs has accelerated in recent months. So has hourly pay for restaurant and hotel workers, whose earnings lagged when the labor market softened last year.

Longer-term Challenges

A few weeks of faster wage growth and lower gas prices in the first half of this year are hardly going to offset years of rising living costs, in either consumers’ attitudes or their finances. Many of the divides between the wealthy and households of humbler means are longstanding.

Thrifty consumers can shift their spending only if they have income to spend. The same research team at Bank of America that has tracked the new green shoots in credit card spending among lower-income households also notes that they are the group with the least wiggle room in their budgets. Even when there is an upswing in the purchasing power of households within the bottom half, it tends to come from a low base line of savings.

Recent data from the Federal Reserve shows that the bottom 40 percent of earners in the United States had “little to no discretionary income” and that this has been a steady trend “virtually unchanged” since the mid-1980s.

Other research estimates from the Fed indicate that with the exception of 2020 and 2021 — the years associated with emergency aid during the Covid-19 pandemic — roughly half of households had no discretionary income.

In the five years before the pandemic — a period characterized by a strong job market and little inflation — hourly earnings rose about 15 percent for the average worker, while grocery prices were more or less flat.

In the five years from 2021 to 2026, wages were up even more — 25 percent — but grocery prices were up about 25 percent, too.

Perhaps the starkest divide in the economy is between renters and homeowners. Rents, as measured by the Consumer Price Index, have risen by roughly a third on average since before the pandemic, and have risen even faster in some cities. Homeowners have seen their insurance and utility bills rise, but their mortgage costs are typically fixed — and many were able to lock in low borrowing costs during the low interest rate era of the recent past.

Wealthy households, who mostly own their own homes, have also benefited from a record run in the stock market. Data published by Brian LeBlanc at PNC Bank shows households have been cashing out their enormous stock market gains over the past couple years and using the earnings as disposable income — affluent baby boomers in particular. And data from Mastercard shows that consumers in higher-income ZIP codes are expanding discretionary and recreational purchases.

The bottom 50 percent of households, by net worth, own only 1 percent of the U.S. stock market, however, meaning they don’t have access to those sort of capital gains.

The gusher of spending from the well-to-do is also partly driving up inflation. Airfares are up 27 percent over the past year. Airlines like Delta passed along higher jet fuel costs to their consumers this spring. But Delta’s chief executive has explained he expects airfares will stay elevated through summer as a result of robust demand from its customer base: sales from premium seats have outpaced those in coach.

“Upper-income households are spending with basically no sensitivity to price,” said Robert Sockin, the chief U.S. economist at PGIM, the asset management firm. “And they spend more on discretionary items than lower-income cohorts.”