Summary
Overview
This Planet Money episode explores a puzzling economic phenomenon: despite historically low consumer sentiment, consumer spending remains remarkably strong. Using Federal Reserve credit card data, economists discover that wealthy Americans—particularly the top 20%—are driving this resilience, spending dramatically more than ever before. This creates what some call a 'K-shaped economy' where the wealthy thrive while lower-income Americans struggle, making the economy vulnerable to any shock that affects high earners, particularly stock market volatility.
The Consumer Sentiment Paradox
Consumer sentiment has plummeted to near its lowest point in half a century, yet consumer spending—which represents 70% of U.S. GDP—remains surprisingly strong. This breaks a longstanding pattern where sentiment and spending moved together like "buddies." Boston Fed economist Dieran Patkey describes this divergence as "baffling," especially given multiple headwinds like high interest rates, inflation, and tariffs that should theoretically slow spending.
- Consumer sentiment is close to its lowest point in half a century
- Consumer spending makes up more than two-thirds (70%) of U.S. economic activity
- Consumer sentiment and spending typically move together, but are now diverging sharply
- High interest rates, inflation, and tariffs should be slowing spending but aren't
" I mean, it's mostly bafflement, right? We see these two numbers, which are significant measures of barometers of economic activity, moving in ways that look discordant with each other. That gives rise to a question about why that might be happening. "
Federal Reserve Credit Card Data Reveals the Truth
Dieran Patkey leveraged Federal Reserve access to anonymized credit card data from large banks, covering about 80% of all credit card balances. This granular data—which doesn't rely on people's memories—reveals monthly spending, debt balances, and income levels. In May 2025 alone, Americans charged $300 billion to their credit cards, with the data showing a stark pattern when sorted by income brackets.
- Federal Reserve has access to credit card data from large banks covering 80% of all credit card balances
- Credit card data captures about half of all retail spending without relying on consumer memory
- Americans charged approximately $300 billion to credit cards in May 2025 alone
" I'm extremely compliant when it comes to surveys because I use the data. So I'm very, I do always participate. I have never been a selected participant in any of the consumer surveys. "
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