The K-shaped economy that has defined the U.S. in the post-pandemic era is predicated on upper-income groups continuing to spend at a strong clip.
It is well understood at this point, or at least should be, that the upper two quintiles of income earners account for 61.7% of all spending. This is significantly more than what the middle class, working class and working poor collectively spend.
Spending slowed during the first half of 2025—household consumption averaged just under 1%—as policy uncertainty and rising prices restrained down-market consumption.
This implies a risk to growth if upper-income groups pull back due to a correction in asset markets or on the back of further distortions through the policy channel.
Our 2025 GDP forecast stands at 1.1% for the year. We think there is a 40% probability of a recession over the next 12 months.
We expect that upper-end groups, with the knowledge of large tax cuts set to take place in 2026, will hit the spending accelerator during the final three months of the year.
This should provide a cushion for the U.S. economy as it absorbs higher prices caused by rising trade taxes that will begin to show up in full just ahead of the holiday spending season.
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