“…in going from the Biden Administration to the Trump Administration, we have traded an economy that disproportionately benefited low-income workers to one that disproportionately benefits the well-off (particularly those who own a lot of stocks).” Paul Krugman
Second and Third quarter Gross Domestic Product growth surged (see graph), mainly due to a jump in consumer spending as shoppers rushed to get ahead of the holiday and rising prices.
But this will only confuse the real economic picture. The third quarter is June to September, before the government shutdown. And it didn’t benefit everyone in this K-shaped economy. Some economists are predicting a coming slowdown and maybe recession next year, despite the good news.
That’s in part because fifty percent of the consumer spending is by 10 percent of American shoppers today, according to Moody’s economist Mark Zandi. Incomes of the middle and low-income earners have lost ground from the higher inflation that has reduced their spending power.
Zandi estimates 22 states plus the District of Columbia are now experiencing enough persistent economic weakness from the federal job cuts and shrinking job market that their economies are close to or in recession, mostly in the North and East states. But even New York and California’s economies have slowed and if they follow the trajectory of the 22 states would tip us into an outright recession, says Zandi.
It's hard to equate this prognosis with the Q3 burst in GDP. “Real gross domestic product (GDP) increased at an annual rate of 4.3 percent in the third quarter of 2025 (July, August, and September), according to the initial estimate released by the U.S. Bureau of Economic Analysis. In the second quarter, real GDP increased 3.8 percent.” BEA
That’s why the bulk of the consumers are spending most on necessities such as healthcare, insurance, clothing, car repairs, gas, housing and utilities. And the prices of most of these goods and services have consumers complaining big time.
The alarm bells are ringing that the worse is yet to come, in other words, if we look under the hood of Chevy, as well as Mercedes owners. With record household debt and a sharply reduced workforce due to government firings and immigrant deportations, the K-gap will only grow worse between the well-off and low-income workers from the rising inflation.
The price index for gross domestic (GDP) purchases increased 3.4 percent in the third quarter, compared with an increase of 2.0 percent in the second quarter.
The personal consumption expenditures (PCE) price index that the Fed uses to gauge inflation also increased 2.8 percent, compared with an increase of 2.1 percent in Q2.
The rising cost of living is also hurting consumer confidence, per the Conference Board’s confidence index; another danger sign. “Consumer confidence weakened for a fifth consecutive month as perceptions of business conditions were negative, and apprehensions about jobs and income deepened,” according to the Conference Board.
Americans blamed their unease on “prices and inflation, tariffs and trade, and politics,” said Dana Peterson, chief economist at the Conference Board.
That is why largest share of consumers—those anticipating that recession is “somewhat likely”—grew again and the small percentage stating that the US is “already in one” crept higher, said Peterson.
Yet the stock indexes are at record highs and the Wall Street rally continues in the hope that AI investments will boost production and bring down the prices of goods and services. Oh goody for the oligarchs!
Many of the low-income workers have only themselves to blame in voting for a man that never intended to improve the lives of workers. His record of bankruptcies to avoid paying investors and workers was well-known before Trump’s first term, so why again?
This administration will soon find out what that means when the other 80 to 90 percent of working Americans realize they have been left behind in this recovery. Actually, the polls are showing maybe they already know.
Harlan Green © 2025
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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