We hear a lot nowadays about the K-shaped economy. In this model, those in higher income brackets are doing well, while lower income folks are struggling. The financial markets pay attention to things like GDP growth and corporate earnings, both of which are looking healthy at the moment and helping push the S&P 500 (^GSPC 1.31%) toward new highs.
The details, however, paint a different picture.
Overall personal spending has remained resilient throughout this current economic cycle. Over the past several months, it has averaged a 0.4% month-over-month gain -- enough to keep the economic engine churning.
But a lot of that spending appears to be built on the back of credit. And the data suggests that consumers are having a really hard time keeping their heads above water right now.
Image source: Getty Images.
Severe credit card delinquency rates are nearing record highs
In Q4 2025, the percentage of credit card debt that was at least 90 days delinquent climbed to 12.7%. That's the highest level since 2011 Q1, when it was just over 13%.
Source: MacroMicro.
It's important to note that the current delinquency rate on credit card debt isn't that far off from its financial crisis peak in 2010. Given the current trajectory of that trend line (it's gone from around 8% to over 12% in just three years), it's not unreasonable to think that the credit market could be around 12 months away from a new all-time high.
The numbers that the stock market usually trades on are based on economic growth and corporate earnings. Those are driven largely by spending. The calculations don't care how the spending is being done. Only THAT it's being done.
SNPINDEX: ^GSPC
Key Data Points
Wage growth isn't keeping up with consumer spending
Ideally, you want to see increased spending supported by increased incomes. U.S. wage growth has slowed from its 2021 peak, but it's still well above 3% annually. That should be enough to support an increase in spending, but that doesn't appear to be the case.
That's because of ongoing affordability concerns. Inflation is still hovering around 3% annually, with many goods seeing even sharper price increases. To keep their heads above water, it looks like an increasing number of consumers are funding their spending by running up credit card debt.
That's a plan that's sustainable for a little while, but as we saw during the financial crisis, consumers eventually hit a wall, and the house of cards comes crashing down.
There isn't much relief in sight, and any attempts by Congress to fix the problem are likely to run into roadblocks. That might mean that the only plausible outcome is a major reset of the credit markets like we saw back in the late 2000s. It would be a painful path no doubt, but the government can't spend its way out of problems forever.
