It is difficult to describe the U.S. economy in black and white terms, calling it “good” or “bad.” On several fronts, the data shows that the economy is healthy. But research shows American consumers don’t feel that way.
“There’s no question at this point that different data could tell a slightly different story,” said Heather Long, chief economist at Navy Federal Credit Union.
Inflation has either fallen or been flat in recent months, depending on which metrics you look at, Long said. The consumer price index has declined from a peak of 9% in June 2022 and has hovered around 3% since June 2023, according to data from the U.S. Bureau of Labor Statistics. Personal consumption spending remained relatively flat last year, at 2.9% in December 2025, the latest reading from the Bureau of Economic Analysis.
However, the price of many consumer goods remains well above 2020 prices, and wages have largely flattened out over the period, adjusted for inflation, according to the Hamilton Project, a nonpartisan economic research group. This disparity may be causing Americans to dislike the economy. According to the monthly University of Michigan Consumer Survey, consumer sentiment was down nearly 13% in February from a year earlier.
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Many economists have described the U.S. economy in 2025 as “K-shaped,” illustrating how high-income earners continue to spend and fuel economic growth while lower-income earners fared better.
Long, one of the economists who coined the term “K-shaped,” said the economy will become more “E-shaped” in 2026, with consumer behavior in three tiers instead of two. A middle group is emerging, she says, and their behavior is beginning to show signs of increasing tension.
This is what she sees.
Top: “Promote mass consumption”
Similar to the top of the K-shape, the top tier of the E-shape economy is made up of high-income earners, or consumers who continue to spend money even as prices rise. A recent analysis by Moody’s Analytics found that the top 20% of earners account for nearly 60% of all consumer spending in the United States.
“This top tier (of earners) is doing really well, and that’s driving a lot of spending,” Long said.
The difference between a K-shape and an E-shape: According to data released in February by the Bank of America Research Institute, spending growth among middle-income earners roughly matched that of higher-income earners until they began to diverge toward the end of 2025. As of January, the gap in annual spending growth between high-income households and all other households reached its highest level since mid-2022, the bank reported.
Wealthy consumers don’t just keep buying what they’ve always had, even if the price is high. Long said some retailers and brands, particularly in the food and hospitality industries, are increasingly beefing up premium products to attract big spenders.
Premium credit cards like the Chase Sapphire Reserve and Amex Platinum recently raised their annual fees to $795 and $895, respectively, betting that the additional benefits will attract higher-income cardholders. “Look at these special platinum credit cards,” Long says. “Almost every company is trying to move up the value chain, and you can see that in their earnings reports.”
This strategy has worked well for airlines, hotel brands, and food and beverage companies, with strong demand for existing and new premium products reported from fall 2025 onwards, even as sales of standard and discounted products have slowed.
Middle class: “treading water”
Long said signs of an affordability crisis are beginning to emerge in the spending behavior of America’s middle class. Although they are still spending on essentials and some discretionary categories, “the middle class is still treading water to be able to pay their bills,” she says.
Long refers to this group as the “Costco economy,” referring to the fact that, while not yet in full-blown panic, more consumers are shopping at discount and wholesale retailers like Costco and Walmart to earn higher profits.
“They’re definitely nervous spenders. They feel like they need to spend every dollar they feel they need to buy in bulk to do everything they can (to save),” she says.
A growing number of American households are living paycheck to paycheck, regardless of where they shop. In 2025, nearly 24% of households will spend the majority of their income on expenses, according to data released Nov. 10 by the Bank of America Research Institute. The bank’s report defines “paycheck to paycheck” as spending more than 95% of your income on necessities such as housing, groceries, utilities, gas and childcare.
The proportion of salaried households has been on the rise since at least 2023, according to bank researchers.
Long said middle-class households may be able to get by for now, but they are under a wave of stress. “Not only are we facing price increases, but something else is going up every few months,” she says. For example, egg prices in 2026 will not be as high as in 2025, while beef prices in January rose 22% from a year ago, according to the Labor Department.
“It’s just whack-a-mole inflation,” Long said.
Bottom: incurring debt
Long says that the lowest tier of the E-shaped economy is characterized by a high rate of credit card use and a high use of “buy now, pay later.”
While middle- and high-income earners do use credit cards and may carry balances, lower-income earners are more likely to report carrying balances. According to the Federal Reserve’s latest Consumer Finance Survey, conducted in October 2024 and released in May 2025, 59% of cardholders with incomes between $25,000 and $49,999 said they carried a monthly balance at least once in the past year.
Half of cardholders with incomes between $50,000 and $99,999 say they have carried over their balance at least once in the past year, compared to just 38% of cardholders with incomes of $100,000 or more.
When it comes to “buy now, pay later” plans, most adults with incomes between $25,000 and $49,999 are likely to have taken out an installment loan in the last year, according to the Fed’s report. According to the data, low-income households, or households with incomes below $25,000, were the survey respondents most likely to report late payments on “buy now, pay later” plans.
According to a February 2025 LendingTree survey, a quarter of Buy Now, Pay Later users report using a loan to pay for groceries in 2025, up from 14% in 2024.
The 2026 tax season could be a lifeline for middle- and lower-class Americans, Long said. More than a third (35%) of Americans expecting a tax refund say they will use at least a portion of their tax money to pay off debt, according to a Feb. 23 Intuit TurboTax survey. But even large refunds are only a temporary solution to ongoing affordability issues, Long said.
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