Despite persistent, near-record-low consumer sentiment and inflation concerns, American consumers are increasing their spending, fueling a debate about whether the U.S. economy is in good shape or bad shape. Macroeconomic indicators measured by the Federal Reserve Bank suggest things are mostly good. But data from ChicagoSpeaks, a representative survey panel of Chicagoans developed by NORC at the University of Chicago, shows that many in our city are struggling.
In reality, the U.S. economy is both good and bad. For those who are thriving financially — about 6% of Chicagoans, according to ChicagoSpeaks data — the economy has never been better. Inflation-adjusted stock prices are up nearly 50% over the past five years, and unemployment is low.
For those on the wrong side of the median wage, however, life is increasingly precarious. According to ChicagoSpeaks data, nearly 1 in 3 Chicagoans cannot pay all their bills in full in a typical month. Roughly 1 in 5 Chicagoans earning less than $100,000 applied for a small-dollar loan in the past year to cover basic needs or emergencies. Nationally, the Federal Reserve notes buy-now, pay-later purchasing has roughly doubled over the past two years, and Financial Health Network finds that the share of households reporting unmanageable debt levels rose to 31% this year.
How can consumer spending remain strong, with so many struggling? The data on who is spending provides an answer. The Federal Reserve Bank of New York tracks retail spending by income using Numerator’s panel of roughly 200,000 consumers. Their data, published in May, shows the following spending patterns from January 2023 through March 2026:
• Those earning more than $125,000 a year, roughly the top 30% of households by income, increased their retail spending by about 7.6% after inflation, or about 2.3% per year.
• Households earning $40,000 to $125,000 increased spending by about 1% per year after inflation.
• Those with less than $40,000 in annual earnings, roughly the bottom 25% of households by income, increased spending by less than 1% per year after inflation.
Because higher-income households spend much more than other households, overall spending has gone up. As the authors of the New York Fed report put it, “the recent growth in retail spending has been mostly due to the high-income households.”
As for other income brackets, those in the middle are increasingly turning to value brands and stretching their dollars wherever they can. Low-income households, which spend nearly all of their income on food, housing and transportation, continue to spend because they must buy these necessities, even though they may be stressed by mounting debt.
Our economy was not always so skewed. Until the late 1970s, a typical worker’s pay rose alongside productivity, so when the economy grew, everyone increased spending, and vice versa. But since the end of 1979, productivity has grown 94% while a typical worker’s hourly pay has grown only 33%, according to the Economic Policy Institute.
The cumulative result of this shift away from shared prosperity between asset owners and workers is that consumer spending holds up in the aggregate because those with the least must spend, no matter the cost, and those with the most spend more and more.
While this phenomenon is easy to see in the data, the economy is being debated in part because few see the disparities in their daily lives. Our individual experience and our perception of the economy are increasingly driven by our place on the economic ladder, and it’s getting harder to see up and down the rungs.
When prosperity was more widely shared, we entered ballparks at the same gates and sat in the same bleachers (or perhaps the box seats). Today, some enter through segregated, private entrances and sit in private clubs segregated from the rest. And many can’t even afford the “cheap seats.” When our nation was less economically divided, our kids often went to the same schools. We even watched the same evening news.
Today, our ability to seal ourselves off physically, socially, politically and economically has become a self-perpetuating challenge. If we can’t experience the same, or even similar, worlds, how can we agree on the challenges? We cannot even agree on whether the economy is good or bad.
Describing this “divergent economy” at a recent event on “Why Consumers and Economists See Different Economies,” Federal Reserve Bank of Chicago President Austan Goolsbee put it this way: “We should take no comfort in the fact that it’s the other person’s half of the boat that’s sinking.” It’s one boat, and one economy after all.
Put another way, Wall Street and Main Street today are two vastly different worlds that seem increasingly incompatible. Unless Wall Street begins to grow the economy in ways that bring Main Street along with it, Wall Street eventually will get pulled down by Main Street consumers’ hard reality.
Brian Fabes is managing director of the Corporate Coalition of Chicago and a senior fellow at NORC at the University of Chicago.
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