By Reshma Kapadia
While President Donald Trump this week called concern about affordability a "con job," the strain American households are feeling is real. Yet that doesn't mean the resilience among consumers that has been powering the economy and financial markets is going to fade away.
A look at who drives spending, what different households spend, and who owns stocks and homes illustrates why the angst hasn't been registering in the market or in economic data. It also explains why strategists expect spending to stay strong in 2026.
Polls continue to show many Americans are frustrated about their ability to afford the basics after years of cumulative price increases. But the large group of people feeling the most pressure don't affect the economy -- or the stock market -- in the way higher-income earners do. That less- well-off cohort accounts for just 15% of spending.
The top 10% of earners, meanwhile, account for half of all consumer spending, according to Moody's. And this group of big spenders have been emboldened by double-digit stock returns. They own roughly 90% of equities and mutual funds.
Rising Zillow values on homes, as owners' equity in real estate hits near a record high of $36 trillion, offer more fuel for spending. While wealthier homeowners may not be tapping their home equity or even their stock gains, rising net worth certainly helps the sentiment that has kept them spending, says Chris Senyek, chief investment strategist at Wolfe Research.
Older Americans are among this wealthier consumer cohort. They are the biggest beneficiaries of the booming market because nearly 80% of corporate equities and mutual funds is in the hands of those 55 and older. Half of that is owned by those age 70 or more.
And this cohort of older Americans has been less vulnerable to inflation: Nearly 80% of those 65 or older own their home, and Social Security checks have built in cost-of-living adjustments.
Even lower-income consumers are likely to get some help from tax cuts and other economic-stimulus efforts. They have had less protection from inflation, not just because they don't have as much in stocks or home equity, but also because of what they spend on.
"We have had consistent GDP growth since 2022, stock market increases and inflation has come down to 3% since pandemic highs. But the overall economic experience is a sense of unaffordability and this inability to get ahead," says Signe-Mary McKernan, vice president of the Family and Financial Well-Being Division at the Urban Institute. "If you are a middle- to low-wealth household, you experience a completely different economy versus higher-wealth households."
Lower- and middle-income households are most hurt by the cumulative effects of inflation, which remains persistent in areas such as rents, food, and healthcare. Those in the bottom 40% of the income spectrum spend 40% of their budgets on housing, 15% on food, and 10% on healthcare. For the top 40%, the numbers are 31% for housing, 12% for food, and 7% on healthcare.
The cost of necessities is rising faster than incomes. While average earnings have risen 38% nationwide since 2017, the annual cost of child care for two children nationally is up 40%. Rents are up 50% on average nationally and the lowest-priced "Silver" healthcare plan on the Affordable Care Act Marketplace is up 41%. That doesn't include increases that would take effect if Congress doesn't extend subsidies due to expire at the end of the year.
Strategists see a better 2026 for consumers, especially for people with lower incomes. Lower interest rates and tax changes, including the end to taxes on tips and overtime, are expected to provide a stimulus of sorts. Families earning less than $100,00 could see a 20% bigger tax refund in the spring, which could lead to a broadening of spending, Senyek says.
People earning more will also see a benefit. Those making $200,000 to $500,000 will get a boost from changes to state and local tax deductions.
Still, risks remain. If Congress doesn't renew the Affordable Care Act tax credits, healthcare premiums, already rising faster than they have historically, could surge even more fiercely, Senyek says. Someone paying $800 a month for Obamacare with a $300 credit could be on the hook for the full amount if the credits aren't extended.
A sustained downturn in the stock market would be an even bigger danger because it would hit people who account for a disproportionate share of consumer spending.
Mutual funds, retirement assets, real estate, stocks and business interests make up 60% of the assets of people with $10 million to $100 million in wealth, according to Apollo. The higher the wealth, the more consumer sentiment is driven by financial assets.
Another spoiler could be if the recently lukewarm job market for white-collar workers takes an uglier turn.
But for now, Aditya Bhave, senior economist at Bank of America, sees a virtuous circle playing out. Higher-income consumers tend to spend more on services, which is good news for an economy where five out of six jobs are in services, Bhave says.
Continued concerns about affordability from the masses could push the administration to find new ways to offset those pressures, providing further stimulus to the consumer and the market. And any stumble in financial markets could be met with similar efforts, given how important it is in keeping the economy chugging along.
Call it the Trump put.
Write to Reshma Kapadia at reshma.kapadia@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 06, 2025 02:30 ET (07:30 GMT)
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