The dual face of the U.S. economy: structural challenges behind the prosperity facade

The current U.S. economy exhibits significant polarization characteristics. On one hand, the stock market continues to operate at high levels, corporate profits remain strong, and a technology-driven investment boom is fueling economic growth; on the other hand, consumer confidence has fallen to historic lows, ordinary households face increasing disposable income pressures, savings rates are sluggish, and credit default risks are rising. This "dual-speed economy" phenomenon is not a short-term fluctuation but the result of long-term structural factors accumulating, including income distribution imbalances, uneven distribution of productivity gains, asset price bubble risks, and fiscal sustainability challenges.

According to the latest data, in the first half of 2026, the U.S. stock market repeatedly hit new highs, with the S&P 500 index remaining in high-level ranges, supported by corporate earnings exceeding expectations. However, the University of Michigan Consumer Sentiment Index fell to a historic low of 44.8 points in May 2026, well below pre-pandemic levels and also below readings during the 2008 financial crisis. The Conference Board Consumer Confidence Index is similarly subdued, indicating widespread public pessimism about economic prospects.

This polarization stems from differences in economic conditions among various groups. High-income classes and asset owners benefit from the prosperity of capital markets, while middle- and lower-income families face inflation pressures, rising housing costs, and sluggish real wage growth. Families are investing more funds into stocks, driving up share prices, but rising credit card delinquency rates indicate many households rely on borrowing to sustain consumption. In 2026, personal savings rates hover at low levels, approaching a historic low of around 2.6%, similar to pre-bubble levels before 2005.

Expansion of Income and Wealth Inequality

Over the past decades, U.S. real GDP growth has significantly outpaced median wage growth. The share of labor income in GDP has continued to decline, with the benefits of productivity gains flowing more to capital owners and high-skilled groups. Data from the World Inequality Database shows that in the mid-1970s, the bottom 50% of the population held about 22% of national income, but by 2025-2026, this share had decreased substantially. The top 1% of earners receive income nearly twice that of the bottom 50% combined.

Distributional data from the Federal Reserve’s financial accounts indicate that in Q3 2025, the top 1% of households held 31.7% of the nation’s wealth, a record high, while the bottom 50% held only about 2.5%. Wealth concentration in stocks is also pronounced: roughly 87% of listed company shares are owned by the top 10%, while the bottom 50% hold less than 2%. This wealth concentration amplifies asymmetries in economic cycles—stock market gains mainly benefit a small minority, while downside risks impact a broader consumer base.

Tax policies and changes in labor market structures have further intensified this trend. Corporate tax cuts have driven stock buybacks, while declining union influence and increased monopoly power have weakened workers’ bargaining power. As a result, despite steady overall economic growth, the real purchasing power of ordinary households has lagged.

Intergenerational and Class Divides in the Housing Market

Housing assets are the main component of household wealth in the U.S., but soaring prices have created a clear "owner vs. seeker" divide. In 2026, the price-to-income ratio for housing remains at historic highs, with median home prices continuing to rise, making it difficult for young families and first-time buyers to enter the market. Homeownership rate in Q1 2026 is about 65.3%, but regional disparities are significant, with affordability issues especially acute in high-cost coastal areas.

High housing prices boost homeowner wealth but also increase rental burdens. Many tenants spend over 30% of their income on housing, with cost burdens reaching record levels among middle- and low-income groups. Housing shortages are estimated at 3.7 to 5.5 million units, further supporting price rigidity. This decoupling of asset prices from income growth reinforces economic stratification: existing homeowners enjoy appreciation gains, while non-owners face higher entry barriers.

Risks of the AI Investment Boom

Investment in AI infrastructure is a key driver of current economic growth. U.S. spending on data center construction has surpassed that on public transportation. In 2026, major hyperscale cloud service providers plan to spend over $600 billion in capital expenditures, with companies like Amazon, Google, Microsoft, and Meta collectively reaching around $630 billion. These investments mainly target GPUs, data centers, and power infrastructure.

However, the return on these investments is increasingly uncertain. Analyses show that only a few giants like Amazon are expected to achieve positive returns, while others may face negative returns under high assumptions. Hyperscalers need to generate about $7 trillion in revenue over the next three years to recoup their investments, but actual monetization pathways face challenges, including power supply constraints, regulatory hurdles, and the speed of AI application deployment. The Shiller CAPE index approaches pre-internet bubble levels, indicating some tech stocks are overvalued. Historically, companies like Cisco took decades to recover after the 2000 bubble burst.

While AI has enormous potential to boost productivity, if returns fall short of expectations, capital expenditure adjustments and stock market corrections could occur. The close link between the stock market and consumer wealth effects means that a reversal could directly suppress household spending.

Fiscal Expansion and Debt Sustainability

The U.S. economy’s current growth partly relies on large-scale fiscal support. Even during periods of low unemployment and relatively strong growth, budget deficits remain high. The Congressional Budget Office (CBO) projects a deficit of about $1.9 trillion in fiscal year 2026, roughly 5.8% of GDP. By 2036, deficits are expected to expand to $3.1 trillion.

Interest payments on debt are among the fastest-growing expenditure items. In early FY 2026, net interest payments have already risen significantly, and over the long term, they will constitute a larger share of federal spending. Aging populations will further increase pressures on Social Security and Medicare, while uncertainties about foreign investors’ willingness to hold U.S. debt could raise borrowing costs.

Tax policy adjustments, including favors for high-income earners and corporations, as well as changes in Medicaid coverage, also influence consumer confidence. While fiscal expansion supports growth in the short term, long-term reliance on deficits is unsustainable, especially if interest rates tighten.

Economic Outlook and Potential Risks

Despite polarization, the U.S. economy remains resilient. Over the past five years, growth has outperformed the Eurozone, and U.S. companies maintain a leading position in global technology. Productivity improvements and AI investments underpin long-term growth, with projected real GDP growth around 1.8%–2.5% in 2026, and unemployment rates holding between 4.3% and 4.5%.

However, structural challenges cannot be ignored. Inflation, influenced by energy price volatility (driven by geopolitical factors in 2026), remains limited in real wage growth (around 0.3% for real hourly wages in 2025–2026). Rising oil prices benefit energy firms but squeeze household disposable income.

Potential risks include: a stock market correction triggering negative wealth effects, AI investment bubbles bursting, narrowing fiscal space, and geopolitical shocks impacting supply chains and energy markets. Policy-wise, the path of interest rates depends on inflation trends, and tariffs, immigration policies, and other factors may have mixed effects.

Conclusion: The Key to Sustainable Development

The U.S. economy remains one of the most dynamic and innovative globally, but the "dual-speed" feature highlights shortcomings in the distribution of growth benefits. Achieving more inclusive and sustainable growth requires attention to improving workforce skills, increasing housing supply, optimizing tax fairness, and strengthening fiscal discipline. If productivity gains can be more broadly translated into wage growth and equal opportunities, it will help bridge polarization and enhance overall economic resilience.

The current situation serves as a reminder to policymakers and market participants that headline data such as GDP and stock market performance do not fully reflect the experiences of ordinary people. Future economic performance will depend on effective management of valuation risks, debt trajectories, and structural inequalities. Only by balancing growth and distribution can a solid foundation for long-term prosperity be ensured.