The K-shaped economy is carrying a ticking time bomb into 2026

The GDP number arrived just before Christmas, wrapped like good news. The U.S. economy grew at a 4.3% annual rate in the third quarter, blowing past economists’ expectations and delivering the kind of headline that signals strength heading into the new year. Consumers went on an unusually strong spending tear while corporations cinched $166 billion in capital gains. President Donald Trump and his team wasted no time celebrating, taking a victory lap over those dour economists who had warned of doom and gloom, declaring the “Trump economic golden age is FULL steam ahead.” Well, slow down, those dour economists replied. There’s something missing in this boom: the jobs. Hiring this year, at best, has stalled, and at worst has collapsed : unemployment has climbed to 4.6%, and even Fed Chair Jerome Powell has warned recent data may be overstating job gains. This is the puzzle economists are now trying to reconcile. In a typical recovery, strong GDP growth shows up first in hiring, then in paychecks, and finally in consumer spending. But in this quarter, it’s reversed: spending is here without jobs. So how does an economy grow at a 4.3% annual rate when households aren’t actually earning more, and in fact, still fighting sticky inflation ? “I’ve never seen anything like it,” KPMG’s chief economist Diane Swonk told Fortune. “To have this stagflation in the inflation and unemployment rate, and to not have it in growth is highly unusual, and something’s got to give.” A tale of two economies There are two parts of the story of how the economy arrived here. The first is that households are spending without income growth. Real disposable income was essentially flat in the third quarter-literally 0% growth. Americans did not gain purchasing power. Yet, they made up the difference through savings drawdowns, credit, or by absorbing costs they cannot avoid. The GDP report itself points to where that pressure is concentrated: mostly in services, and within services, healthcare was a leading driver. Americans spent the most on healthcare last quarter since the Omicron wave of 2022, Swonk said. Outlays on outpatient care, hospital services, and nursing facilities rose at one of the fastest paces in years, reflecting aging demographics and higher medical prices, but also the growing use of costly GLP-1 weight-loss drugs, which continue to push up spending even after adjusting for inflation. This was not a classic discretionary splurge, then. It was spending families had little ability to defer. That distinction matters, because spending driven by necessity behaves very differently from spending driven by rising paychecks. When households are paying more for healthcare, insurance, child care, or elder care, they are not signaling confidence; rather, they are absorbing pressure. And with real disposable income flat, those costs are not being met by wage growth, but by thinner savings and deferred choices elsewhere, Swonk said. The problem, then, is when that pressure eases in early 2026 as tax refunds surge and withholding changes put more cash temporarily back into paychecks, the...

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