For the U.S. Two-Speed Economy 2026
5 June 2026 byTegvan Pettinger
For the U.S. Two-Speed Economy 2026
5 June 2026 byTegvan Pettinger
It was the best of times, and it was the worst of times. This may sound cliché, but it accurately describes what is happening in the US economy. On the one hand, the wealth of the stock market is skyrocketing, and on the other hand, consumer confidence is falling to record levels. American households are investing huge sums in the stock market, which encourages a boom in stock prices.
At the same time, however, credit card default rates have soared, and many households are struggling to make ends meet. This lack of disposable income has reduced the US savings rate to just 2.6%.
A rate reminiscent of the bubble before the 2005 global financial crisis. The U.S. economy is increasingly relying on spending by the richest 1% and the richest 10% of the population. How can we explain this wealth inequality, and how sustainable is the current U.S. economy?
Corporate profitability has increased in recent years, and the recent stock market boom has contributed to profits exceeding expectations.
At the same time, households are seeing a decline in real wages as a result of rising inflation. Recent increases in oil prices are exacerbating this trend. Rising gas prices are reducing the disposable income for workers, but increasing the profits of fossil fuel economies. But it’s not just short-term trends: In the past few decades, the U.S. economy has seen real GDP grow at a much faster pace than average wages. What is happening is a decline in the worker’s share ofGDP, where productivity gains are not reflected in rising wages. This is due to the rise of the monopolies of big tech companies, their growing monopoly power, a less progressive tax system, and a decline in the bargaining power of workers. This decline in labor income is even worse for middle-income earners. In 1974, the top 50% accounted for 22% of national income. But by 2024, this situation was almost reversed, with the 1% The highest earners earn nearly twice as much as the top 50%.
It’s not just stocks and income. Rising house prices have made owners richer than ever, but young families are increasingly deprived of owning a home. House prices remain close to record levels above incomes, creating a gap between those who already own assets and those who seek to acquire them.
Investing in Artificial Intelligence
One of the most prominent strengths of the current economy is the boom in investment in artificial intelligence. The U.S. spends more on building data centers than it does on public transportation. Uncertainty is growing about the ability of AI infrastructure to generate enough revenue to cover the current investment. The Financial Times notes that only Amazon expects a positive return on its investments in AI scaling. Oracle and Meta appear to be seeing negative returns, assuming no costs. The problem, as economic forecasting expert Will Sommer points out, is that AI giants will need $7 trillion in revenue over the next three years. Where will this amount come from?
As a result of the AI boom, many stocks look suspiciously overvalued. The Shiller CAPE index is approaching pre-bubble levels. It’s worth recalling how long it took big tech companies to recover from the collapse of the internet bubble. Cisco, which was the world’s most expensive company in March 2000, took 25 years to recover.
The problem is that a large part of the US economy is tied to the performance of the stock market, and if the stock market falls, many households will see negative effects on their wealth and reduce their spending.
Demographic factors contributed to the stock market boom, as more seniors turned to investing their retirement money in passive mutual funds. The market also benefited from generous corporate tax cuts, which led to an increase in share buybacks. However, despite the tax cuts, the recent budget limited Medicaid coverage, and as a result of these changes, a sharp rise in the number of uninsured Americans is expected. This is a significant setback in costs, and explains in part the sharp decline in the number of uninsured Americans. The consumer confidence we have seen recently. Another problem facing the US economy is the sharp rise in the budget deficit, even though the current economic cycle is witnessing strong growth. This is unusual, as governments typically record large deficits during recessions. Still, America is borrowing at recession-like levels, despite low unemployment and continued growth. Economic growth is supported by unprecedented financial expansion. Not only will the deficit widen, but demographic factors will also put real pressure on government spending and borrowing in the future.
The problem is that as bond yields have risen, the cost of debt financing has become higher, and the largest growth in U.S. government spending is attributable to debt interest payments. Financial expansion has undoubtedly contributed to boosting economic growth. However, it is not possible to continue to rely on increasing deficits to boost economic growth, especially as large foreign investors have declined to hold U.S. bonds.
The irony is that the U.S. economy has strengths; its economic growth has outpaced that of the Eurozone over the past five years. One economist recently pointed to the conflicting forces in the U.S. economy. Rising tariffs, declining immigration, and growing uncertainty have all slowed growth, but at the same time, increased productivity and increased investment in artificial intelligence have contributed to maintaining good growth rates. Growth, rising inflation is actually putting pressure on interest rate hikes.
The U.S. economy is not in a state of collapse. In many ways, it remains the most dynamic economy in the world. It has grown faster than Europe, investment remains strong, and U.S. companies continue to dominate the global tech sector.
But behind the announced numbers lies a growing disparity. Stock market fortunes are rising dramatically, while consumer confidence is at a very low level. Corporate profits are increasing, yet many households are draining their savings. Asset owners have made huge gains, while housing and health care remain expensive for many Americans.