It’s difficult to describe the U.S. economy in black and white terms like “good” or “bad.” On several fronts, the data says the economy is healthy. But surveys show American consumers don’t feel that way.
“There’s no doubt right now that different data can show slightly different narratives,” says Heather Long, chief economist at Navy Federal Credit Union.
Depending on which measure you look at, inflation is falling or staying flat in recent months, Long points out. The consumer price index has dropped from its 9% peak in June 2022 and hovered around 3% since June 2023, according to U.S. Bureau of Labor Statistics data. Personal consumption expenditures has remained relatively flat for the last year, coming in at 2.9% in December 2025, the latest reading from the Bureau of Economic Analysis.
But prices for many consumer goods remain far above what they were in 2020, and wages have roughly plateaued over that time when adjusted for inflation, according to nonpartisan economic research group, The Hamilton Project. That disparity could be contributing to Americans feeling bad about the economy. Consumer sentiment is down nearly 13% year-over-year as of February, according to the University of Michigan Survey of Consumers, which is released monthly.
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Many economists referenced the U.S. economy as “K-shaped” in 2025, illustrating how higher earners were doing alright — continuing to spend and driving economic growth — while lower-income Americans pulled back.
Long, who was among the economists using the phrase “K-shaped,” says the economy is taking more of an “E-shape” in 2026, with three tiers of consumer behavior instead of two. A middle group is distinguishing itself, and those people’s behavior is starting to show that they’re experiencing growing signs of strain, she says.
Here’s what she’s seeing.
Top tier: ‘Driving a lot of the consumption’
Like the top of the K-shape, the top tier of the E-shaped economy is comprised of high earners — the consumers who continue to spend money despite elevated prices. The top 20% of earners account for nearly 60% of all U.S. consumer spending, a recent analysis from Moody’s Analytics found.
“This top tier [of earners] that’s doing really well, that’s driving a lot of the consumption,” Long says.
The difference between the K-shape and the E-shape: Middle-earners’ spending growth was closely aligned with higher-earners until it started diverging toward the end of 2025, according to Bank of America Institute data released in February. As of January, the gap between high-income households and all other households’ annual spending growth reached its highest level since mid-2022, the bank reported.
Wealthy consumers aren’t just continuing to buy what they always have, despite higher prices. Some retailers and brands, especially in the food and hospitality industries, are increasingly boosting their premium offerings to attract those big spenders, Long says.
Premium credit cards like the Chase Sapphire Reserve and AmEx Platinum recently upped their annual fees to $795 and $895, respectively, betting that additional perks will lure in more high-earning cardholders. “Look at all of these exclusive platinum credit cards,” Long says. “Almost every company is trying to move up the value chain, and you can see that in the earnings calls.”
The strategy has paid off for the airlines, hotel brands, and food and beverage companies that have reported strong demand for their extant and newer premium offerings since fall 2025 — even as sales for their standard and discount products slow down.
Middle tier: ‘Treading water’
Spending behaviors among middle class Americans is where you start to see signs of the affordability crisis, Long says. They’re still spending on their necessities and some discretionary categories, but “the middle class is treading water so they can still pay their bills,” she says.
Long calls this tier the “Costco economy,” referencing consumers who aren’t necessarily in a full-blown panic yet, but are increasingly shopping at discount and wholesale retailers like Costco and Walmart to get the most bang for their buck.
“They’re obviously spending in a nervous way,” she says, “They feel they need to stretch every dollar they feel they need to buy in bulk, to do whatever they can [to save].”
Regardless of where they’re shopping, a growing number of American households are living paycheck to paycheck. Nearly 24% of households had expenses eating up the bulk of their earnings in 2025, according to data from Bank of America Institute published on Nov. 10. The bank’s report defines “paycheck to paycheck” as having costs for essentials like housing, groceries, utilities, gas, child care and more that exceed 95% of income.
The share of paycheck-to-paycheck households has been on the rise since at least 2023, the bank’s researchers found.
Middle-class households may be getting by for now, but Long says they’re experiencing stress in waves. “Not only are they facing high prices, but it’s every couple of months, something else surges,” she says. Eggs, for example aren’t nearly as expensive in 2026 as they were in 2025, but in January, beef prices were up 22% from the previous year, per the Labor Department.
“It’s just whack-a-mole inflation,” says Long.
Bottom tier: Taking on debt
The bottom tier of the E-shaped economy is characterized by high credit card usage and Buy Now, Pay Later usage, Long says.
While middle and higher-earners certainly use credit cards and sometimes carry balances on them, lower-earners are more likely to report carrying a balance. Among card holders, 59% of those earning between $25,000 and $49,999 say they’ve carried a balance from month to month at least once in the last year, according to the Federal Reserve’s latest Survey of Consumer Finances which was conducted in October 2024 and released in May 2025.
Half of cardholders earning between $50,000 and $99,999 say they’ve carried a balance at least once in the last year, compared to just 38% of those earning $100,000 or more.
As for Buy Now, Pay Later plans, adults earning between $25,000 and $49,999 are mostly likely to have used the installment loans in the last year, the Fed reports. Lower earners, households earning less than $25,000, were the most likely survey respondents to report being paying late on a Buy Now, Pay Later plan, data shows.
A quarter of Buy Now, Pay Later users reported using the loans to pay for groceries in 2025, up from 14% in 2024, found a February 2025 LendingTree survey.
The 2026 tax season may come as a lifeline for Americans in the middle and bottom tiers, Long says. Over a third — 35% — of Americans expecting a tax refund say they’ll use at least a portion of it to pay down debt, a Feb. 23 Intuit TurboTax survey found. But even large refunds are only a temporary fix for an ongoing affordability problem, Long says.
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