The latest University of Michigan sentiment index improved to 48.9 from 44.8, though it remains at very weak levels by historical standards. As reported by ING, this reading should be consistent with consumer spending falling around 1.5% year-on-year, highlighting the disconnect between sentiment and actual spending patterns. The top 20% of households by income - those making $155,000 or more - account for more than 40% of all spending, with Moody's Analytics data suggesting this skew is even greater, with the top 20% currently accounting for more than 60% of all consumer spending. This disparity reflects the growing influence of higher-income households who have seen their finances boosted by surging property and stock market wealth, while the median American faces much more challenging economic conditions.
The conventional narrative of the K-shaped economy - where the rich pull away while everyone else falls behind - is fundamentally misleading, according to new analysis. According to Census data analysis, 54.6% of U.S. households were in the middle-income band earning between $35,000 and $100,000 in 1967, declining to 39.1% by 2022. However, this decline represents households moving up rather than falling into poverty. The share of households earning $100,000 or more nearly tripled from 13.1% to 37.5% over the same period, while the low-income share fell from 32.3% to 23.3%. As reported by the American Enterprise Institute, the upper-middle class is now the largest single income group in the country, roughly three times its size in 1979.
The genuine divide lies not in income mobility but in wealth concentration. According to the Federal Reserve's Distributional Financial Accounts, the top 10% of households by wealth held about 67% of total household net worth as of Q4 2024, averaging $8.1 million each. In contrast, the bottom 50% held roughly 2.5% of the total, averaging about $60,000. The top 10% own assets that compound over time, while those who rent and live paycheck to paycheck experience inflation without gains. This wealth gap explains why income mobility appears limited despite significant upward movement in household earnings. The bottom 60% of households by income only hold 15% of America's wealth, meaning the surge in stock and property prices has not provided the same positive boost as for high-income households who hold 70% of the wealth.
Real household disposable income has fallen for three straight months, contributing to a net 54% of respondents expecting unemployment to rise over the next 12 months, a reading on par with the Global Financial Crisis and early 1990s recession. However, inflation expectations receded with the 1-year ahead reading dropping to 4.6% from 4.8%, while 5-10 year ahead expectations fell to 3.4% from 3.9%. Recent oil price movements suggest retail gasoline prices could drop back below $4/gallon next week, having recently been as high as $4.60/gallon. This should mean further declines in both market and consumer inflation expectations, which would remove a key argument that hawks use to justify calls for higher US interest rates. The Federal Reserve is expected to hold rates steady next week and not hike at all in this cycle.
Goldman Sachs estimates that around 300 million jobs globally are exposed to AI automation, with the technology potentially handling tasks making up roughly a quarter of U.S. work hours. While Goldman projects AI could lift global GDP by about 7% and add 1.5 points to annual productivity growth, the technology could also displace 6% to 7% of jobs over a decade, particularly affecting administrative support and routine office work. The analysis suggests investors should own the top arm of the K-shaped economy - companies building AI infrastructure, chips, and data centers - while respecting the bottom arm through defensive positions in staples, healthcare, and utilities. Despite the data showing upward mobility, financial anxiety runs high even among households pulling in six figures, driven by relative deprivation - the psychological phenomenon where satisfaction is set by comparison rather than absolute position.
