Key Takeaways:

  • Data released by the University of Michigan last Friday (February 6) showed that, boosted by a strong rally in U.S. stocks, confidence among households with better finances rose, offsetting the pessimism of consumers who do not own stocks, and the overall consumer sentiment index edged higher this month.
  • Although the household sentiment index rose toits highest level since August 2025, Joanne Hsu, Director of the University of Michigan Surveys of Consumers, said in the report that "from a historical perspective, the overall sentiment level remains very low."
  • Hsu said: "Confidence surged among consumers with the largest stock portfolios, while sentiment among those without stocks stalled and remained at depressed levels." She added, "Concerns about high prices eroding personal finances and rising unemployment risks remain widespread."

In-Depth Analysis:

The survey results align with the so-called "K-shaped" income trend seen since the end of the pandemic: affluent consumers are thriving, while most other households struggle to maintain their standard of living.

Mark Zandi, Chief Economist at Moody's Analytics, noted that consumers earning more than $175,000 annually—the top 20% of earners—contributednearly 60% of total consumer spending in the third quarter of 2025。

Zandi wrote in a recent LinkedIn post: "This is yet another record high in our data going back to 1989. The K-shaped economy is becoming increasingly K-shaped."

Not all data show this divergence between thriving and struggling households in the "two-speed economy." The U.S. economy grew at an annual rate of 4.4% in the third quarter, and the unemployment rate rose 0.1 percentage points to 4.4% in December, near historic lows. Additionally, although inflation remains above the Federal Reserve's 2% target, it has been below 3% for several consecutive months.

Federal Reserve Vice Chair Philip Jefferson said in a speech last Friday: "Based on signs of continued economic resilience, I have modestly upgraded my growth forecast for 2026 in recent weeks." He expects economic growth this year2.2%, similar to the pace in 2025.

Federal Reserve Governor Lisa Cook echoed Jefferson's views but with concerns. Cook said in a speech on Wednesday: "The overall economy is solid." However, she noted that "recent strong overall growth may mask the difficulties facing many households, especially low- and middle-income families," which show signs ofrising delinquency ratesand stagnant spending.

Cook said in her speech: "The affluent are doing well, but vulnerable households are not." Her conversations with labor, business, and community leaders indicate that "there is dissatisfaction with the economy—and it is growing—especially among vulnerable households."

Zandi believes that an economy relying on affluent consumer spending to drive growth is fragile. He said: "An increasingly K-shaped economy cannot be good. It means the economy is highly dependent on a small group of wealthy people, whose spending in turn depends heavily on the performance of their stock portfolios."

Zandi added: "The growing anxiety among Americans—evident in consumer sentiment surveys, worsening social ills, and divisive politics—is likely partly rooted in the K-shaped divide."

Despite consumers' concerns about the overall economic environment, their views on future price pressures were more optimistic than last month, according to the University of Michigan survey. Hsu said expectations for inflation over the next 12 months fell from 4% in January to 3.5% this month, the lowest level in a year. The survey data was collected over the two weeks ending February 2.