This morning I broke down rising recession risks, sticky inflation, and a labor market flashing red lights in my Medium post. But after digging into more data, a fascinating counterpoint is emerging: despite tariffs, rising prices, and economic jitters, American consumers—particularly higher earners—are still spending like they’re in good shape.

This resilience may be one of the most under-appreciated dynamics keeping the U.S. economy afloat, even as the warning lights flash.

The Confidence Fairy Returns

Back in 2012, Paul Krugman mocked the idea of a “confidence fairy”—the belief that optimism alone could offset fiscal austerity’s drag on growth. Fast forward to 2025, and it’s hard to ignore that confidence, or at least wealth-driven spending power, is propping up the economy in ways few expected.

Here’s the latest:

• Atlanta Fed’s nowcast shows consumer spending adding nearly 1.5 percentage points to Q3 GDP growth, its strongest contribution this year.

• Bank of America card data reports U.S. spending up 2.8% year-over-year for the week ending August 30. Back in May and June, growth was close to flat.

• Consumption is top-heavy: the top 40% of earners account for more than 60% of U.S. spending.

• Stock wealth matters: Fed data shows stock investments make up 22.4% of household net worth, near record highs.

Tariffs Hurt… But Not Everyone

If we put these facts together, a clear picture emerges:

• High earners drive most U.S. consumption and are far more likely to own stocks.

• Retail investors bought aggressively during market pullbacks and reaped the rewards as equities hit all-time highs this summer.

• Tariffs disproportionately hurt lower-income households, but the wealth effect from market gains blunted that pain for higher earners—the very group driving the majority of spending.

This dynamic has created a consumer class that feels flush enough to power growth, even while much of the economy is feeling squeezed.

The Wealth Effect vs. Tariff Drag

Yale’s Budget Lab estimated tariffs are a $2,300 after-tax hit to the average household, but that’s been offset for many by equity gains and confidence to “buy the dip.” Corporate earnings—fueled in part by AI growth—helped lift the S&P 500 back to record levels by June. Retail traders were net buyers when hedge funds were selling, and that boldness is now showing up in consumer resilience.

Markets End the Week Mixed

Even with this strength, investor sentiment is swinging day by day. Friday’s optimism over a weak jobs report and a likely Fed rate cut didn’t last:

• S&P 500: closed down 0.3%

• Nasdaq 100: up 0.1%, but off its highs

• Russell 2000: up 0.5%, leading the day

The tug-of-war between wealth-driven spending and recessionary signals is creating one of the most nuanced market backdrops we’ve seen in years.

My Take

While my Medium post this morning highlighted the risks of a sharp slowdown, today’s deeper dive reinforces that this is not a one-dimensional economy. Yes, the labor market is softening, and credit markets are signaling stress—but high earners’ confidence, stock gains, and willingness to spend are cushioning the blow.

For developers and investors, that means opportunity remains for well-structured deals, especially those targeting markets and asset classes catering to the wealthier consumer segment. Still, this is a narrow base of strength. If sentiment shifts or equities retreat, the floor under the economy could drop quickly.