Why it’s so hard to figure out the economy right now
- - Why it’s so hard to figure out the economy right now
Analysis by Zachary B. Wolf, CNNNovember 23, 2025 at 9:00 AM
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A pedestrian walks near the New York Stock Exchange on Friday. - Michael Nagle/Bloomberg/Getty Images
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The stock market keeps breaking records, but angst about the economy keeps befuddling politicians.
The wealthy are getting wealthier, but everyone else feels somewhat left behind. The executive editor of CNN Business, David Goldman, published an interesting video in which he compared the difficulty of selling $12 burritos with the fact that $230 iPhone socks — yes, they’re a thing — are a hot item.
I talked to Goldman by email about the concept behind this conundrum, that the US economy is shaped like a K. Our conversation is below, along with his video.
What is the K-shaped economy?
WOLF: I was struck by your video about the K-shaped economy. First, can you just explain what that is?
GOLDMAN: You can think of America’s economy as basically split in two. If you make a lot of money, you probably are wondering what all the fuss is about: Your 401(k) is doing great this year, you have a paycheck that may be outpacing inflation, and you can afford to spend on stuff you don’t necessarily need.
If you’re not in that category — and a growing number of Americans aren’t — you hate this economy. You never adjusted to the price shock of 2022, and inflation has stubbornly raised prices since then (even if they’re more under control than they were under Biden). You’re probably borrowing money to pay for necessities, and you may be increasingly late on your debt payments.
So if you’re at the top of the K, you’re the reason why all the economic data still looks good, overall. If you’re at the bottom of the K, you’re the reason why all the polling data suggests President Donald Trump’s support on the economy has effectively vanished.
Hasn’t there always been a divide like this?
WOLF: I think you could apply that same K shape to the “One Big Beautiful Bill Act,” the signature law, so far, of Trump 2.0. Among many other things, it tries to pay for tax cuts that predominantly benefit higher-income Americans with controls on Medicaid and SNAP benefits that affect the lowest-income Americans. Point being: Has the US always had a K-shaped economy?
GOLDMAN: Yes, but it’s getting worse.
The K-shaped economy has been a growing problem for decades, made worse by the loss of guaranteed worker pensions, the rise of the gig economy, increasing health-care inflation, the high cost of college, the lack of affordable housing… We’ve all heard the story, and we know it because we’re living it.
Actually, the one exception — when lower-income workers gained ground against high-income workers — was during the few years that followed the pandemic. Government support gave working-class folks a leg up, and, for the first time in a generation, the wealth gap narrowed. Oh, and mortgage rates were dirt cheap, which let homeowners refinance like crazy to make their mortgage payments as low as possible.
But it didn’t last. The stimulus-check sugar rush wore off, and the economy kind of resumed its previous trajectory.
Now the gap in the K is accelerating: Mortgage rates are near multi-decade highs, Trump is cutting safety-net programs and increasing hurdles to access support.
On Friday, the Bureau of Labor Statistics reported that inflation-adjusted hourly pay fell 0.1% between August and September for people who aren’t in managerial roles (i.e., low-income folks). That means that their real pay got a little smaller in the summer, because higher prices ate into their earnings. Meanwhile, real earnings for higher-paid positions gained, even when accounting for inflation. So the wealth gap is widening.
You can see that in Walmart’s earnings this past week: The fastest-growing customer segment for Walmart is middle-income folks who make more than $100,000. So the middle-class is starting to penny-pinch, too.
A man moves fruits and vegetables in a Brooklyn shopping district on Wednesday. - Spencer Platt/Getty ImagesWhat’s the difference between affordability and inequality?
WOLF: The K-shaped economy concept fits with another term that is currently dominant in the political conversation: affordability. In hindsight, affordability may have sunk Democrats in 2024. It’s the issue that, at the moment, is doing real damage to Trump. What distinguishes the affordability issue today from the inequality issue that was very much in the news a few years ago?
GOLDMAN: I think they’re two sides of the same coin. If the economy is working for you, you’re not super concerned about affordability. You might grimace when you pay $5 for something that cost $3 a couple years ago, but $2 isn’t breaking the bank. If the economy is leaving you behind, you may stop buying that thing altogether — or go into debt to pay for it.
If you watched my K-shaped economy video, there’s a reason I used the $230 iPhone “sock” and the $12 Chipotle burrito as examples. The iPhone sock has been ridiculed because of the price — but it’s completely sold out. For people who can afford it, they perceived value in a trendy designer item. But Chipotle’s CEO last month said the company is really struggling with customers who make $100,000 a year or less, because they don’t think a $12 burrito bowl is better value than buying food at the grocery store.
Is Trump helping or hurting affordability?
WOLF: Polling suggests Americans don’t think President Trump has done enough on affordability. What do the numbers say? Is there any proof yet that his tariffs are driving up costs?
GOLDMAN: There’s not a ton of evidence yet that Trump’s tariffs are raising prices broadly. Inflation is at 3% annually — the same as when Trump took office (although it fell close to 2% in the first few months after he took office and then started rising again).
There hasn’t been a CPI inflation report since the shutdown started, so the data’s a little stale … and Trump didn’t really put his tariffs in place widely until August. But you see prices rising in certain items like furniture (up 6% over the past 12 months through September) and Swiss watches (up 6.6%) that we just don’t make here. You see it in tropical fruits like bananas (up 7%) and coffee (up 19%), which is why the administration reversed course and cut tariffs on produce we don’t grow here.
The right-leaning Tax Foundation estimates that the average American household will pay $1,200 more this year than last year because of Trump’s tariffs — so, like $100 a month. But Trump also cut taxes, so for some folks in higher income brackets, that’ll even out some.
Still, JPMorgan had an interesting report last month that suggested businesses are eating about 80% of the tariff costs right now — but there’s evidence that they can’t keep taking that on, as profit margins get thinner … so they’re about to start passing that onto consumers.
By this time next year, JPMorgan economists said they wouldn’t be surprised if that was flipped — so you’ll be paying 80% and businesses will be shouldering just 20%. Ouch. The Tax Foundation agrees and said next year your tariff costs on average will be $1,600 per household.
Homes in a San Francisco neighborhood on August 27. - Justin Sullivan/Getty ImagesHousing is hard
WOLF: Is there anything more that Trump could be doing on housing?
GOLDMAN: Housing is such a tricky one. … Trump’s housing ideas are pretty wacky, especially the 50-year mortgage that basically everyone across the political spectrum hated. The portable mortgages (where you take your mortgage with you when you buy a new house) or assumable mortgages (where you take on the seller’s mortgage) are interesting ideas but super complex, and experts told us that it could break the underlying market that effectively makes the entire mortgage system work in the first place. Not fun.
The real problem is that we stopped building homes in this country during the financial crisis, which was exacerbated by a housing crash. Supply hasn’t kept up with demand, and if you took Econ 101, you know that means prices rise. And there’s just not much that Trump or anyone in the federal government can do about that. He’s talked about opening up federal lands, but … those aren’t places people want to live.
State and local governments are increasingly serious about taking on this issue. You had that affordable housing interview about New York City a couple weeks ago, so you know each location’s housing issues are unique. The advocate you interviewed said New York is focused on cutting red tape, but I’m skeptical of his argument that New York has plenty of room to build. It’s true that there are low-density areas of the city, but they tend to be far from accessible public transportation. I hope he’s right — it’s insanely expensive to live here!
California is doing some really interesting — if controversial — experimentation with zoning laws that could help ease the housing affordability crisis. But NIMBYism is real, and there’s no quick or easy fix.
Is the US taking stakes in companies a problem for capitalism?
WOLF: One story that has not gotten enough attention during Trump 2.0 is the stakes the US government is taking in private companies like Intel and others. What’s your take on it? Necessary to maintain US dominance or a nationalist hazard to capitalism?
GOLDMAN: I mean, we just did a story on how those stocks that Trump invested taxpayers’ money in are outperforming the S&P 500 by a pretty wide margin. So … I guess I’m pro? For now at least? Haha.
The risk is, of course, that this all comes crashing down in some kind of AI bubble burst that could make put those investments under water. There’s no sense that we’re in danger of that happening imminently, but certainly the market is growing concerned that AI may be overvalued.
It’s pretty extraordinary for the government to become an investor in companies of this magnitude. I mean, we bailed out Chrysler and GM 16 years ago, but that was an emergency event during the biggest recession since the Great Depression, so that’s very different from the situation we’re in right now. Nvidia is a $5 trillion company, America is clearly leading the way. … I’m not sure there’s a real argument that this kind of investment is necessary to maintain America’s dominance.
With that said, for projects of massive scale, like NASA, public-private partnerships work extremely well. AI may eventually be on that kind of scale, and it really is a national security concern to the United States if China takes the lead on this potentially earth-shattering technology.
I don’t know about the nationalist hazard to capitalism. … I’ve heard the argument, but “picking winners and losers” sounds like more of a talking point than a real concern. Intel was a deeply troubled company before America took an investment in it, and I’m not sure $10 billion is going to return it to dominance. I think Qualcomm, Nvidia, AMD and Broadcom are right to be annoyed but they’re going to be just fine.
A Trader works on the floor of the New York Stock Exchange on Friday. - Angela Weiss/AFP/Getty ImagesWill the AI bubble burst?
WOLF: There have been a lot of stories recently about an AI bubble that’s keeping the stock market in record territory. What does that mean for Americans who are the market (and by that I mean pretty much everyone with a 401k)?
GOLDMAN: Yeah, remember the dot-com bust that led to a mini-recession in the early 2000s? That’s what could happen if this thing goes south. The eight most valuable companies on the market are all worth north of $1 trillion and they’re all AI companies. Nvidia, the granddaddy of all AI companies, makes up 8% of the S&P 500. So you have a lot riding on AI, even if you’re a buy-and-hold index fund kind of investor.
But I don’t buy that we’re in for a crash any time soon. There is a stupid amount of money floating around, but it’s not phony baloney money — it’s backed up by legit banks and not smoke and mirrors like during the dot-com bust. There are no Pets.coms out there that I can see — and a lot of potential Amazons.
With that said, are we in an AI bubble? Almost certainly. Is it about to pop? I have no idea. This still could be early days. It’s notoriously difficult to know what stage of a bubble we’re in until it bursts.
Explain ‘circular funding deals’ fueling AI
WOLF: Our recent story about Nvidia, the $5 trillion company, included the term “circular funding deals.” Is that a new thing in the AI era? Is it something that is concerning to people who pay a lot of attention to the economy as a whole?
GOLDMAN: Basically, everyone is in bed with one another. Can I say that on this podcast? This is a podcast, right?
Yeah, this is the craziest part of all this. There are chipmakers, database companies, server farms, cloud providers and application builders, and it seems like all of them are invested in one another. It’s smart, I suppose, to spread the risk. But it also means everyone is basically exposed to the same potential fallout if one of these companies goes down.
The reason they’re doing it is because there is so much demand for AI chips, so much demand for server capacity, so much demand for power. … It’s just not possible to say “we choose you, exclusively” and remain competitive.
When will we know how things are going?
WOLF: We’re behind on economic data because of the shutdown. What are the most important year-end reports and indicators you’ll be looking at for the strength of the economy this year?
GOLDMAN: Jobs and inflation are the big ones for me. We got some mixed news in the September jobs report — the unemployment rate rose higher than expected, but so did the number of jobs created. We have no idea what’s going on with prices. We’ll find out soon.
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