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 Not only is that view of a recession outdated, it also may not fit an economy that, for a whole lot of Americans, is already feeling like one that’s in a recession.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.








