It’s challenging to characterize the U.S. economy in simplistic “good” or “bad” terms. Data indicates the economy is robust on various fronts. However, consumer surveys reveal that Americans perceive it differently.
“It’s evident that different data can convey subtly different stories,” asserts Heather Long, chief economist at Navy Federal Credit Union.
Depending on the metric analyzed, inflation seems to be either decreasing or stabilizing recently, Long notes. The consumer price index has fallen from its 9% high in June 2022, maintaining around 3% since June 2023, according to data from the U.S. Bureau of Labor Statistics. Personal consumption expenditures have remained fairly stable over the past year, recording 2.9% in December 2025, as per the latest figures from the Bureau of Economic Analysis.
Nonetheless, prices for many consumer goods are significantly higher than they were in 2020, and wages have essentially stagnated when adjusted for inflation, according to nonpartisan economic research group, The Hamilton Project. This imbalance might be leading to negative sentiments among Americans regarding the economy. Consumer sentiment has declined nearly 13% year-over-year as of February, based on the University of Michigan Survey of Consumers, released monthly.
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Numerous economists described the U.S. economy as “K-shaped” in 2025, demonstrating how wealthy individuals were thriving — continuing to spend and propelling economic expansion — while lower-income Americans were pulling back.
Long, one of the economists employing the term “K-shaped,” states that the economy is evolving into more of an “E-shape” in 2026, revealing three levels of consumer behavior instead of two. A distinct middle group is emerging, and their behavior is beginning to indicate increasing signs of pressure, she suggests.
Here’s what she has observed.
Top tier: ‘Fueling a significant portion of consumption’
At the top of the E-shaped economy, similar to the K-shape’s apex, this tier consists of high-income earners — those who keep spending despite rising prices. The top 20% of earners make up nearly 60% of all U.S. consumer expenditures, according to a recent study by Moody’s Analytics.
“This high-income tier is performing exceptionally well, leading much of the consumption,” Long notes.
The contrast between the K-shape and the E-shape is that the growth in spending among middle-income earners closely mirrored that of high-income earners until it began to split toward the end of 2025, based on data from the Bank of America Institute released in February. By January, the annual spending growth disparity between high-income households and other households reached its highest point since mid-2022, as reported by the bank.
Affluent consumers are not merely continuing to purchase their usual items at higher prices. Certain retailers and brands, particularly in the food and hospitality sectors, are increasingly enhancing their premium products to cater to these substantial spenders, according to Long.
High-end credit cards such as the Chase Sapphire Reserve and American Express Platinum recently raised their annual fees to $795 and $895, respectively, anticipating that added benefits will entice more high-income cardholders. “Look at these exclusive platinum credit cards,” Long states. “Almost every company is striving to ascend the value chain, a trend evident in earnings calls.”
This approach has yielded results for the airlines, hotel chains, and food and beverage companies reporting substantial demand for their existing and newly introduced premium offerings since fall 2025, even as sales of their standard and budget products decline.
Middle tier: ‘Staying afloat’
Spending habits of middle-class Americans illustrate the onset of the affordability crisis, Long notes. They continue to spend on essentials and some discretionary items, yet “the middle class is merely staying afloat to fulfill their financial obligations,” she explains.
She refers to this group as the “Costco economy,” highlighting consumers who are not in dire straits yet, but increasingly opt for discount and wholesale retailers like Costco and Walmart to maximize their spending power.
“They are indeed shopping with anxiety,” she notes, “They feel compelled to stretch each dollar and tend to purchase in bulk, doing everything they can [to save].”
Regardless of their shopping choices, an increasing proportion of American families are living paycheck to paycheck. Nearly 24% of households experienced expenses consuming most of their income in 2025, according to data from the Bank of America Institute published on Nov. 10. The report defines “paycheck to paycheck” as having essential expenses for things like housing, groceries, utilities, gas, childcare, and more that exceed 95% of income.
The proportion of households living paycheck to paycheck has been rising since at least 2023, according to the bank’s researchers.
While middle-class households may be managing for now, Long states that they are experiencing waves of stress. “Not only are they confronting high prices, but periodically, some other cost surges occur,” she remarks. For instance, while eggs are not nearly as high in 2026 as they were in 2025, in January, beef prices rose 22% relative to the previous year, per the Labor Department.
“It’s essentially whack-a-mole inflation,” states Long.
Bottom tier: Incurring debt
The lower tier of the E-shaped economy is marked by significant credit card debt and Buy Now, Pay Later usage, as explained by Long.
While middle and higher-income earners certainly utilize credit cards and occasionally carry balances, lower earners are more likely to report outstanding balances. Among cardholders, 59% of those earning between $25,000 and $49,999 claims 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 conducted in October 2024 and released in May 2025.
Half of cardholders earning between $50,000 and $99,999 admit to having carried a balance at least once in the last year, while only 38% of those earning $100,000 or more report the same.
Regarding Buy Now, Pay Later plans, adults earning between $25,000 and $49,999 are the most likely to have utilized these installment loans in the past year, according to the Fed. Lower earners, those with incomes below $25,000, were the most frequent respondents indicating late payments on Buy Now, Pay Later plans, according to data.
A quarter of Buy Now, Pay Later users stated they used the loans for grocery purchases in 2025, an increase from 14% in 2024, revealed a February 2025 LendingTree survey.
The 2026 tax season might offer a much-needed reprieve for those in the middle and lower tiers, Long observes. More than a third — 35% — of Americans anticipating a tax refund indicated they would allocate at least a portion of it to pay down debt, according to a Feb. 23 Intuit TurboTax survey. However, even substantial refunds only provide a temporary solution to an ongoing affordability dilemma, Long warns.
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