Everything is great. GDP growth is supposedly strong. Unemployment is supposedly low. Inflation is supposedly licked. Nothing to worry about. So, why is consumer confidence at an 11 1/2 year low?  At 84.5 for January, the Conference Board’s index reached the lowest levels since May 2014 — all while GDP growth has been relatively strong.

“I’ve never seen anything like it. I’ve been doing this for 40 years…a long time to never see anything like this.”
Diane Swonk, KPMG chief economist

Confidence also dropped for well-to-do households which have been driving the strong spending data which have underpinned the economy. Current conditions have reached levels not seen since the pandemic, while expectations are actually worse than the pandemic lows.

The job market is a significant culprit, with confidence regarding the ability to find a job closely matching the reality. Note that these are not BLS data, which have been more suspect than ever since Trump fired former Bureau of Labor Statistics Commissioner Erika McEntarfer over data that didn’t flatter him.

The decline in job openings over the past several years has been in stark contrast to the rise in stock prices. Layoffs rose over 200% from December to January, with large job cuts at major employers such as Nike, Amazon and UPS.  According to the latest University of Michigan sentiment report, worries about job stability and earning potential in the next five year were “particularly elevated” for higher-income and higher-educated consumers. 

And it’s all happening at a time when inflation is still problematic for American households. Even if you buy Trump’s inflation numbers (I don’t) the recent decline in the rate of inflation certainly hasn’t brought prices down. The essentials are still about 30% higher than they were five years ago, sharply outpacing the 20% salary gains over that same period.

It’s not just lower income Americans who are hit hard by stubbornly high prices, but they are disproportionately affected. Wealthier consumers generally have larger cushions in everything from their bank accounts to their real estate holdings and stock portfolios.

“Traditionally, the economy is doing really well, but ordinary people are saying they’re not.”
Matt Stoller, American Economic Liberties Project

They call it the K-shaped economy because it affects the “have-nots” much more than the “haves.” But, as we discussed in our Look Ahead at 2026, it has always forced a Fed policy response that ends up affecting everyone — even wealthy investors.

Stay tuned.

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The futures are bouncing slightly just prior to the open.