Donald Trump is hitting the road to sell his economic agenda as Americans are increasingly blaming him for what the data shows is a worsening affordability crisis.
Recent figures point to a pronounced “K-shaped” economy, as the weak jobs market and stubbornly high prices widen the difference between the top and lowest earners.
An Atlanta Federal Reserve analysis of Bureau of Labor Statistics data shows that, after years of above-trend growth, pay for America’s lowest earners has slowed more sharply than for the highest — erasing much of the progress made during the past decade in closing the gap.
Economists say the trend highlights that lower earners are more exposed to the recent weakening in the US labour market.
“Even though the inflation rate has come down from where it was after the pandemic, you need to get wages up. And to get wages up you have to have a strong labour market,” said Rebecca Patterson, a senior fellow at the Council on Foreign Relations.
“US growth is largely dependent right now on AI and AI-related capex driving wealth,” Patterson added. “The world’s largest economy being dependent on a couple of dozen companies doesn’t sound like great economic risk management.”
The US president is set to speak in Pennsylvania — a battleground state which he won in 2024 — on Tuesday, where he is expected to push back against criticism that his economic policies have not done enough to help normal Americans.
Trump’s stewardship of the economy was once his strongest argument, but a widening K-shaped divide now threatens Republicans’ midterm prospects, evident in quarterly company results, sentiment surveys and job reports.
Unemployment among Hispanic workers — who swung significantly towards Trump last November — rose to a year-high of 5.5 per cent in September, compared with 4.4 per cent overall.
The latest polling from the University of Michigan also highlights this split. Joanne Hsu, the director of the university’s Consumer Sentiment Index, said that since May, sentiment among those who did not own stocks had generally declined, with their reading no better than “at the height of post-pandemic inflation in mid-2022”.
The opposite was true for those who owned equities, “with a particularly strong rise for participants with the top 20 per cent of holdings”, she said.
Recent surveys from the Conference Board add to a sense that poorer households are growing more pessimistic about the economy. Its Consumer Confidence Index fell sharply in November and, on a six-month moving-average basis, consumers earning under $15,000 remained the least optimistic of all income groups, the organisation said.
Just as President Joe Biden struggled to convince US voters that they were financially better off with him in the White House, Trump appears to be facing a similar challenge.
Republicans performed poorly in a series of closely watched off-year elections last month, in part because their opponents campaigned hard on a pledge to bring down the cost of living.
Trump’s response has been to try to discredit the very idea of an affordability crunch.
“I think affordability is the greatest con job,” he said at the White House this week. Democrats “look at you and they say ‘affordability’. They don’t say anything else”.
At the same time, though, the administration has sought to show it is acting to lower prices, cutting tariffs on several agricultural imports last month in an effort to reduce grocery bills — a key source of concern among US voters.
In November Trump also floated on social media a tariff-funded “dividend” of at least $2,000 per person — “not including high-income people” — and proposed redirecting healthcare subsidies from insurers to Americans’ savings accounts.
This squeeze on household budgets is now filtering through to corporate America, particularly in consumer-facing sectors. Shannon Saccocia, chief investment officer at Neuberger Berman, wrote that she was seeing the effects of this K-shape trend “across sectors exposed to lower-income consumers” in the latest company results.
During McDonald’s most recent earnings call, Christopher Kempczinski, chief executive of the fast-food chain, said he continued to “see a bifurcated consumer base with . . . traffic from lower income consumers declining nearly double digits in the third quarter, a trend that’s persisted for nearly two years”.
Kempczinski, citing high rent, food and childcare costs, said the low-income consumer had been forced to absorb some “significant inflation”, and “I think that’s affecting their outlook and their sentiment and their spending behaviour”.
Scott Boatwright, chief executive at Chipotle Mexican Grill, said during his own call that he had spotted a similar trend among lower-income households: “We’re seeing [a] significant pullback from that cohort under $100,000 annually.”
Public dissatisfaction with the government’s handling of the economy has reached record levels, underscoring the political risk facing Republicans as they try to hold on to control of both chambers of Congress in next year’s midterm elections.
The president’s party is likely to campaign in part on its signature legislative achievement: its so-called “big, beautiful” bill, which passed in July but is only set to come into force in 2026.
While the bill maintains tax cuts unveiled during the president’s first term in the White House, it also imposes cuts to Medicaid and food stamps.
The Congressional Budget Office said the bill would probably lower households’ resources in the lowest decile of the income distribution by $1,600 per year — compared with a rise of about $12,000 for the top 10 per cent.
However, the Trump administration claims the act will help millions of lower paid workers in the services sector by exempting tips from taxation, and that tariffs on US imports will create better-paying jobs for the working class by encouraging companies to reshore manufacturing to the US too.
White House officials also argue that the CBO’s estimates do not account for the impact of other administration policies, such as deregulation, on growth.
The Democrats, however, have accused Trump and the Republicans of enriching the wealthy while leaving the poor worse off, and economists share the fiscal watchdog’s analysis that the coming 12 months will see many normal Americans’ finances come under further strain.
“Folks are going to get kicked off Medicaid, while the middle class are going to see their Obamacare premiums rise by quite painful amounts,” said Justin Wolfers, an economics professor at the University of Michigan.
“Even if the aggregates rise and the size of GDP growth is positive, working- and middle-class Americans may find themselves in a recession where their incomes are falling.”
Additional reporting by Lauren Fedor in Washington