The GDP number arrived just before Christmas, wrapped like good news.
“I’ve never seen anything like it,” KPMG’s chief economist Diane Swonk told Fortune. “To have this stagflation in the inflation and unemployment rate, and to not have it in growth is highly unusual, and something’s got to give.”
A tale of two economies
There are two parts of the story of how the economy arrived here. The first is that households are spending without income growth. Real disposable income was essentially flat in the third quarter—literally 0% growth. Americans did not gain purchasing power. Yet, they made up the difference through savings drawdowns, credit, or by absorbing costs they cannot avoid. The GDP report itself points to where that pressure is concentrated: mostly in services, and within services, healthcare was a leading driver.
This was not a classic discretionary splurge, then. It was spending families had little ability to defer. That distinction matters, because spending driven by necessity behaves very differently from spending driven by rising paychecks. When households are paying more for healthcare, insurance, child care, or elder care, they are not signaling confidence; rather, they are absorbing pressure. And with real disposable income flat, those costs are not being met by wage growth, but by thinner savings and deferred choices elsewhere, Swonk said.
The problem, then, is when that pressure eases in early 2026 as tax refunds surge and withholding changes put more cash temporarily back into paychecks, the boost could act as a “sugar high”: a short-term lift to spending that does not fix the underlying problem of weak job creation and stagnant real income.
“We will feel more broad-based gains as we get into 2026,” Swonk said, “but at what price?”
The concern, she added, is that stimulus layered on top of already elevated service-sector inflation could make price pressures “stickier,” not relieve them.
The K-shaped economy, fully matured
Swonk noted that recreational services—travel, leisure, premium experiences—remain a bright spot, but are overwhelmingly carried by higher-income households. Even there, the data reveals stress beneath the surface. Vacation activity in August, she said, was the second-lowest on record for that month, trailing only August 2020. Airlines and hotels are still filling premium seats, but that demand is increasingly concentrated at the top.
The danger, Swonk argued, is that these two engines behave very differently over time. Spending supported by asset appreciation can persist as long as markets cooperate. Spending driven by necessity, however, cannot.
“When you’re carrying an economy by wealth effects and affluent households, as opposed to employment gains and generating new paychecks, you’re vulnerable if there’s any correction in equity markets,” Swonk said. She described how quickly that channel can reverse: foot traffic slows, discretionary spending pulls back, and high-end demand evaporates far faster than headline GDP data would suggest.
“When you divorce growth from employment gains, you’ve got a problem,” Swonk said. “And this is before the real effects of AI have even set in.”
