Navy Federal Credit Union Chief Economist Heather Long dismantles Scott Bessent’s distorted picture of the US economy and explains how it’s heavily weighted for the wealthiest Americans.
After describing the US economy as Domino’s instead of wood-fired gourmet pizza, Long said much of the economy’s strength relies on “spending by the richest Americans,” or, as she describes it, “this K-shape economy.”
LONG: Yeah, this K-shaped economy, I started using the term a year ago and it really caught on. And basically, it’s the notion that most of the spending in the economy is coming from the top 20% of earners.
So these are people in America who are earning about $170,000 or more. And their reality is just totally different from everybody else in the bottom 80%.
And so that’s the K, the sort of diverging top 20% continues to live La Vida Loca. They continue to travel to Europe.
They continue to spend on birthday parties, and weddings and cars. Most new car buying is happening in this top 20% segment.
Meanwhile, in the rest of America, people are kind of treading water. They’re spending more and more at discount and warehouse stores. They’re really having to budget and economize.And they’re feeling it. They’re feeling a financial squeeze.
Life hasn’t changed for the wealthy under Trump, no surprise there, but for the entire working class it’s a massive struggle.
By the way, Treasury Sec. Bessent hates the term K shaped economy and said, “I can say here definitively the K-shaped economy is over.”
That’s a lie, obviously.
LONG: We’re sitting in a world with 3.4% inflation in the past year. So 2% doesn’t go too far when you’re looking at grocery prices that are up over 3%, gas prices that are up about 25% from a year ago. And so that’s why people still feel that financial squeeze.
It is very real for the middle and certainly modern-income Americans.
You can see it in the data, too.
So credit card debt back at a record high.
We’ve got more and more people applying for personal loans and buy now, pay later.
It’s really telling that grocery shopping- people spending at grocery stores has really pulled back in recent months.
So you can see people tightening their belts and economizing.
ON the Big Ugly bill, Long said it was a temporary fix, saying, “it was a temporary cushion.”
LONG: And so we’re seeing slowing wage growth.
Wage growth, the latest data is the lowest, coolest wage growth in five years.
So that’s where I think it’s hard to argue that even if you saw some C shape in the spring, that it’s going to happen going forward, going forward, looks more and more like the K. You don’t have to take my word for it, places like BJ’s Warehouse, these discount warehouse, they just came out and their earnings in the recent days and said the K shape, they still see it the biggest spending growth coming from those top earners.
And Walmart also released its quarterly earnings. That just happened on Thursday. They said it’s been the weakest it’s been in six years.
I posted a seven-minute video because it was refreshing to hear an economist talk freely about the economy without some Trump official or talking head interrupting and trying to hijack the narrative.
