“…while the economy is growing thanks to AI spending, it’s a K-shaped expansion: People who were already affluent are becoming more so, but the less well-off are under severe pressure. For example, there are clear signs that middle-to-low income consumers are struggling: car loan and credit card delinquencies are rising, and grocers report that shoppers are buying cheaper varieties of food. At the same time, the affluent are spending freely: the top 10% of the income distribution now accounts for nearly half of all consumer spending.” Paul Krugman
This was the wrong season for President Trump’s Republicans to freeze Democrats out of the just passed continuing resolution or demolish the East Wing. We already have a record fall freeze hitting the Midwest and southern states.
Americans already feeling the freeze is also a good way to describe the Democrats landslide victories in the November elections. The record government shutdown put the U.S. economy on pause, but in fact much of the damage was already done, says Nobel Laureat Paul Krugman, just as Trump seemed oblivious to the timing of the damage being done to the White House,.
Republicans had been losing in the popularity polls this year because they chose to ignore the signs. So they believed that flying blind by keeping the federal government closed without official economic data on employment and inflation was the better option than knowing the truth.
But there are other data to fill the government void in data collecting that affect how consumers behave. The ADP, for instance, a private sector payment provider said private-sector employers shed an average of 11,250 jobs a week in the four weeks ending Oct. 25.
This hit the “middle-to-low income” consumers particularly hard that Krugman is talking about. What about inflation?
Ordinary grocery prices are climbing, forcing consumers to shop for “cheaper varieties of food.” Grocery prices have risen 18.2 percent since January 2022, making a $100 grocery bill approximately $118 today, per CBS News.
And President Trump is flailing in his attempt to mask the damage his tariff war is causing. Overall consumer inflation is stuck at 3 percent in large part because of the tariffs, so he wants to offer $2,000 rebates to consumers while the Fed is cutting interest rates. This would cost more than the import taxes he has already collected, enlarging the federal debt that has ballooned from his Big Beautiful Bill tax cuts.
And his proposed cuts to legal immigration from the longer term, historical average of one million to 7500 annually, will continue to shrink the workforce, even the number of H-1B work visas for highly qualified workers that are badly needed in the tech sector.
All of this will continue to damage economic growth at a time when worldwide economic growth is being affected by the chaos Trump has generated in tearing up existing foreign trade agreements.
No economy can tolerate such uncertain weather over the longer term. Hence investment decisions remain frozen while consumers find shelter for the coming economic winter. How severe will it be?
Harlan Green © 2025
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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