During President Donald Trump’s annual State of the Union address on Tuesday, he spoke about the economy and the state of affordability for Americans, saying conditions have improved during his second term.
“Our nation is back: Bigger, better, richer and stronger than ever before,” he said early in his speech.
Many Americans don’t seem to be feeling that way, however. Around 72% of Americans rate the U.S. economy as “fair” or “poor,” a January poll of over 8,500 U.S. adults by Pew Research found. And overall consumer sentiment is down nearly 13% year-over-year as of February, according to the University of Michigan Survey of Consumers, which is released monthly.
During his address, Trump pointed to falling inflation, job growth, tax cuts and stock market gains as evidence that the economy “is roaring like never before” under his leadership.
In January, inflation came in at an annual rate of 2.4%, down from 3% at the same time last year, according to the Bureau of Labor Statistics, and prices for eggs and gas are down 48% and 8% year-over-year, respectively, according to BLS data.
Unemployment was at 4.3% in January, slightly higher than a year ago when it was around 4%, per the Labor Department, but it remains relatively low. Job growth was slow throughout 2025, but picked up in January with nonfarm payrolls rising by 130,000. The S&P 500 index was up 16% at the end of 2025, indicating a prosperous year for the overall stock market.
However, despite these factors, many consumers are still feeling squeezed. When adjusted for inflation, wages have barely budged since 2020, according to analysis from January by The Hamilton Project, a nonpartisan economic research group.
This discrepancy may be why Americans are so downbeat on the economy despite bright spots like stock market gains and relatively low unemployment, says Heather Long, chief economist at Navy Federal Credit Union. Costs for essentials like housing and health care keep rising, making it increasingly difficult for Americans to keep up or feel like they can get ahead.
“There is an ongoing affordability crisis in America, and it’s been building for years,” she says. “It was exacerbated by the pandemic and the inflation that came after, and in the past year … it really hasn’t improved.”
In an emailed statement to CNBC Make It, White House spokesman Kush Desai said, “as the President also made clear in his State of the Union, much work remains.” He said the administration is working on policies that would “put more money in Americans’ pockets.”
How consumers are responding
Broadly, consumer behavior is showing signs of distress, experts say. Take the personal savings rate, for instance. The average share of disposable income Americans sock away fell to 3.6% in December, the lowest level since 2022, according to Bureau of Economic Analysis data.
“Many households are becoming much more intentional with recurring expenses,” says Jovan Johnson, a certified financial planner and certified public accountant who works primarily with small business owners. He says he has seen families take measures like having one spouse leave the workforce to stay home and reduce day-care costs.
“I’m also seeing more meal prepping and a noticeable pullback in discretionary lifestyle spending — things like boutique fitness memberships and premium gyms are often being replaced with more affordable options,” he says.
Some consumers have continued to spend, however. Gross domestic product increased in the fourth quarter of 2025, driven by consumer spending, according to BEA data. But it’s the highest earners who are powering much of that spending: The top 20% of earners account for nearly 60% of all U.S. consumer spending, a recent analysis from Moody’s Analytics found.
Economists have labeled this a “K-shaped” economy to illustrate higher earners driving economic growth with continued spending while lower-income Americans pull back.
However, Long sees 2026 as more of an “E-shaped economy,” with three tiers, she says:
- High earners who are doing well and to whom retailers and credit card companies are catering with increasingly premium and luxury offerings.
- Middle-income earners who are “treading water.” They’re still keeping up with their bills, but switching to discount and wholesale retailers like Costco to stretch their dollars.
- Lower-income earners who rely on credit cards and Buy Now, Pay Later plans to get by.
Incoming tax refunds, which Trump says will be the largest ever, may help individuals cover their expenses or boost their savings in the short term, Long says. As of Feb. 20, the average refund amount for individual filers was around $3,800, according to the Internal Revenue Service.
Among Americans expecting a refund, 44% said they would put at least a portion in savings and 41% said they plan to spend it on necessities, a February Intuit TurboTax survey found. Over a quarter of those planning to save said they’re doing so because they’re worried about the state of the economy.
Long says tax refunds are only a “temporary fix” for those who have have fallen behind on payments or struggled to save.
How to fix the affordability crisis
In his State of the Union address, Trump urged Congress to act on pending legislation to lower housing and health-care costs.
While falling prices can help ease the affordability crisis, Long and other experts say wages need to go up and continue outpacing inflation to truly address the problem. “Unless you continue to see really, really strong wage growth, it’s going to be harder for people to make all of their payments,” Long says.
Democratic leaders say the affordability crisis is far from over.
“As I campaigned for Governor last year … I heard the same pressing concern everywhere: costs are too high,” Virginia Governor Abigail Spanberger said while delivering the Democrats’ response to the State of the Union on Tuesday.
Sen. Elizabeth Warren, D-Mass., sent a letter to Trump on Wednesday saying the president’s characterization of the economy is “at odds” with what Americans are experiencing. She asked Trump and his administration to provide evidence that his policies are lowering costs for Americans.
“Despite your claims, you have not ‘solved’ affordability or ‘defeated’ inflation,” she wrote. “Instead, over the past year, prices have skyrocketed for American households.”
While the government has some power to affect prices in specific sectors, policy changes can also impact wage growth, something the general population doesn’t typically consider, says Heidi Shierholz, president of the Economic Policy Institute, a non-partisan think tank.
“The public sort of believes that inflation is a policymaker’s fault, and that’s actually almost never true,” she tells CNBC Make It. “The other side of that is the people, when they’re asked in surveys, they take personal responsibility for what happens to their wages, whether it’s good or bad.”
Strengthening labor laws, increasing the minimum wage and improving social safety nets like unemployment insurance are a few ways the government could step in to address lagging wage growth, Shierholz says.
“Minimum wage is not moving at the federal level anytime soon,” she says, adding that many states have recently raised or made plans to increase their minimums, however. Other actions in Congress like the Protecting the Right to Organize Act could help bolster protections for unionization efforts, although the act is not likely to pass anytime soon, Shierholz says.
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