This is an adapted excerpt from the May 9 episode of “Velshi.”
The old-fashioned way of thinking about a recession is that it’s two consecutive quarters of negative growth in gross domestic product, GDP being the broadest measure of all economic activity in the country. Not only is that view of a recession outdated, it also may not fit an economy that, for a whole lot of Americans, is already feeling like one that’s in a recession.
Here’s the puzzle the United States currently finds itself in: By the official numbers, the economy is doing fine. GDP is growing, consumer spending is up, and the stock market is near record highs.
As of last year, the top 10% of earners now account for about half of all the spending in the entire country, according to Moody’s Analytics.
And yet, this month, the University of Michigan, which runs the gold-standard survey for measuring how Americans feel about the economy, found something striking. In May, consumer sentiment was the worst it has ever been in the entire history of the survey, going back to the 1950s. That’s lower than it was in the 2008 financial crisis and at the peak of pandemic inflation.
So what’s going on? The simplest way to understand it is this: There isn’t one American economy right now, there are two.
Economists call this a K-shaped economy, because if you draw it on a chart, the line for wealthier households invested in the stock market is going up (the top of the K), and the line for everyone else is flat or going down (that’s the bottom).
And how wide is the gap? As of last year, the top 10% of earners now account for about half of all the spending in the entire country, according to Moody’s Analytics. Data from the Federal Reserve Bank of St. Louis found that the top 20% of households by income hold roughly 71% of all household wealth. Since 2023, the wealth of the top 1% has grown by more than 25%, according to the Federal Reserve Bank of New York. The middle 40% — the broad American middle class — has gained less than 10%.
Imagine a street with two restaurants on it. One is packed every night while the other is empty. The block’s average looks fine, but nobody actually eats the average.
The next thing to understand is what’s actually pushing those headline economic numbers up, because it’s not what most people would assume.
When you hear that the GDP grew 2% in the first quarter of this year, that sounds like the economy is humming along. But GDP is just a sum, adding together all the spending happening in the economy by consumers, by businesses and by the government. And right now, the consumer piece is weak. Goods spending is essentially flat. Across every income group, real spending has actually turned slightly negative in recent months.
So what’s holding the number up? Two things. The first is the government. Defense spending crossed $1 trillion this year, roughly a 15% jump from the year before, driven in large part by the war with Iran. To put $1 trillion in perspective, that’s more than the combined defense spending of the next 14 countries on Earth.
The second is a major economic boom in a single narrow sector: companies pouring money into building data centers for artificial intelligence.
Take those two things out, and there isn’t much of a story.
That is, the top of the K — the wealthy, the stock market, the AI boom and the Pentagon — is doing the heavy lifting. The economy looks healthy because that part is humming. But the bottom is quietly shrinking underneath.
Then there’s inflation. After cooling to 2.4% in February, it jumped to 3.3% in March. The reason is simple: Gasoline went up almost 19% over a year earlier, and heating oil went up 44% due to the war with Iran, which hit the global oil supply.
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Then there are the tariffs, which President Donald Trump continues to use despite endless determinations that they are either illegal or really bad for the economy.
Tariffs pass through into the price of everything that gets imported. So a family at the bottom of the K isn’t merely stuck with stagnant wages. That family is also paying more for gas, more for groceries, more for everything that uses energy or comes from overseas, which is most things.
If you want a single piece of evidence that the bottom of the K is already in a recession, look at Whirlpool’s earnings. According to numbers shared by the appliance manufacturer, sales are down almost 10%.
The headlines say the economy is strong, and for the people at the top of the K, those headlines are accurate. But for the people at the bottom, they read like a foreign language.
The company reported that discretionary spending (the money people spend on things they want, not things they need) was down about 15%. The CEO of Whirlpool didn’t dance around the term, calling it a “recession-level industry decline.” Whirlpool suspended its dividend and slashed its forecast for the rest of the year. People aren’t buying appliances because they can’t afford to.
Which brings us to the Federal Reserve, the central bank, which sets interest rates. If the economy is weakening, the Fed needs to stimulate it by cutting interest rates, which increases demand and increases inflation, by the way.
If the economy is as strong as inflation, GDP and the stock market suggest it is, the Fed needs to raise interest rates and put the brakes on spending. It can’t do both at the same time. And right now, Trump is loudly demanding cuts. The last time the Fed caved to political pressure during a supply shock like this one was in the 1970s, and the result was stagflation: high inflation and high unemployment for the better part of a decade.
So here’s where we are. By the textbook definition, there is no recession: GDP is growing, the stock market is up. The headlines say the economy is strong, and for the people at the top of the K, those headlines are accurate.
But for the people at the bottom, they read like a foreign language. They’re paying more for the same gas, the same groceries, the same rent. The dishwasher won’t get replaced this year. That vacation got canceled. The credit card balance went up. The recession isn’t coming for them, it’s already here.
The only real question is how long the rest of the economy can keep pretending it’s not.
Allison Detzel contributed.
Ali Velshi is the host of “Velshi,” which airs Saturdays and Sundays on MSNBC. He has been awarded the National Headliner Award for Business & Consumer Reporting for “How the Wheels Came Off,” a special on the near collapse of the American auto industry. His work on disabled workers and Chicago’s red-light camera scandal in 2016 earned him two News and Documentary Emmy Award nominations, adding to a nomination in 2010 for his terrorism coverage.