Dive Brief:

• Consumer sentiment edged up this month as the booming U.S. stock market lifted spirits among financially well-off households, offsetting gloominess among consumers who do not hold equities, the University of Michigan said Friday.
• Although the mood among households rose to the highest level since August 2025, “the overall level of sentiment remains very low from a historical perspective,” Joanne Hsu, director of the university’s surveys of consumers, said in a report.
• “Sentiment surged for consumers with the largest stock portfolios, while it stagnated and remained at dismal levels for consumers without stock holdings,” Hsu said. “Concerns about the erosion of personal finances from high prices and elevated risk of job loss continue to be widespread,” she said.

Dive Insight:

The university’s survey results line up with a so-called K-shape income trend since the end of the pandemic: While wealthy consumers thrive, most other households struggle to maintain their living standards.

Consumers who annually earn more than $175,000 — and rank in the top 20% in terms of income — accounted for nearly 60% of total spending during the third quarter of 2025, according to Moody’s Analytics Chief Economist Mark Zandi.

“This is another new high in the data we have constructed back to 1989,” Zandi said in a recent LinkedIn post. “The K-shaped economy is becoming steadily more K-shaped.”

Not all data reveal a split in the so-called “two-speed economy” between thriving and less fortunate households.

The economy expanded at a 4.4% annual rate during the third quarter and unemployment in December rose 0.1 percentage point to a historically low rate of 4.4%.

Also, inflation, while above the Federal Reserve’s 2% goal, has hovered below 3% for many months.

“For 2026, I have revised up my growth forecast modestly in recent weeks, informed by signs of the economy's continued resilience,” Fed Vice Chair Philip Jefferson said in a speech Friday. He forecast 2.2% economic growth this year, similar to the pace in 2025.

Fed Governor Lisa Cook shares Jefferson’s view, with some concerns.

“The overall economy is solid,” Cook said Wednesday in a speech. Yet she noted that “recent strong overall growth likely masks a challenging situation facing many families, particularly low- and moderate-income households” that show signs of rising delinquencies and stagnant spending.

“The well-off are doing well, while vulnerable households are not," Cook said in a speech. Conversations with labor, business and community leaders “suggest a dissatisfaction with the economy — and a worsening one — particularly among vulnerable households,” she said.

An economy that relies for growth on spending by the wealthy is fragile, Zandi said.

“An increasingly K-shaped economy can’t be good,” he said. “It means the economy is highly dependent on a small group of the well-to-do, who, in turn, spend based in significant part on how their stock portfolios are performing,” he said.

“The increasing angst of Americans, evident in consumer sentiment surveys, our mounting societal ills, and our fractured politics, is likely at least in part due to the K-shape,” Zandi said.

Although anxious about their overall economic circumstances, consumers hold a brighter view than last month about future price pressures, according to results of the University of Michigan survey.

Expectations for inflation in 12 months fell from 4% in January to 3.5% this month, the lowest reading in a year, Hsu said.

The university gathered data for the survey during the two weeks ending Feb. 2.