Throughout my 50-year-plus career, I have had a chance to observe the movement of GDP from searing growth to recession, and normal times in between. During the Reagan years, when GDP hit a 4 percent growth rate, everyone cheered the steaming U. S. economy, so much so that the Fed had to step in and raise interest rates to record highs to tame inflation driven out of control by the robust economy.
And of great interest in recent years, before the pandemic that turned everything on its ear, the talking heads on business news networks all cheered a steady economy that hovered in the 2 percent-plus range. Of course, the pandemic threw a wrench in the works, creating a great expansion of subsidies and handouts that stoked inflation and created supply chain disruptions unseen anytime in history. It took a long time for the economy to grow out of this mess, including the inflation that is stubbornly just beyond the Fed target of 2 percent, creating an environment where the Fed is holding interest rates to high levels despite recent token reductions to appease the current Administration.
As I write for construction materials publications and lecture around the country, I repeat over and over the power of the American Consumer, who is our nation’s biggest industry by far. The consumer represents 70 percent of GDP. Historically, as goes the sentiment of the consumer, so goes the economy. It is instructive to note that almost without exception, every recession was preceded in the months before by steep drops in consumer sentiment. Not this time.
In a striking report at press time, it turns out that consumer spending pushed the U.S. economy up 4.4 percent in third quarter, fastest in two years. This despite sinking consumer sentiment measures from the organizations that track this. Consumer spending grew at a healthy 3.5 percent pace, with spending on services such as healthcare rose 3.6 percent versus a 3 percent uptick on goods spending, including an increase of just 1.6 percent on so-called durable goods, such as cars, that are meant to last at least three years. A surge in exports and a drop in imports also contributed to robust third-quarter growth. Business investment, excluding homebuilding, rose at a 3.2 percent clip, partly reflecting bets on artificial intelligence.
The economy has remained resilient despite uncertainty caused by the Administration’s economic policies, particularly its double-digit taxes on imports from almost every country on the planet. The gap between how consumers say they feel and the strong spending numbers might reflect what is known as a “K-shaped economy.” Wealthier Americans are spending more, their incomes boosted by market gains and growing investments, while lower-income households struggle with stagnant pay and high prices. This is the first time in memory when consumer sentiment and consumer spending diverged, as historically, and drop in sentiment causes the consumers to close up their wallets and stop spending, leading to a slowdown or even a recession.
Curiously, the job market also looks a lot weaker than the overall economy, and this has not tamped down the consumer. Employers have added a lackluster 28,000 jobs a month since March. In contrast. in the 2021-2023 hiring boom that followed Covid-19 lockdowns, the economy was creating 400,000 jobs a month. Still, the unemployment rate remains low at 4.4 percent, suggesting a no-hire, no-fire labor market with companies hesitant to bring on new employees but reluctant to let go of the ones they have.
My take is that the country is experiencing a jobless boom where strong growth is powered by AI investments and consumption by wealthier families, but there is almost no hiring. It is an uneasy situation for many middle-class families, and one of the big questions for 2026 is whether the middle class will start to feel the uplift from the boom.
With 70 percent of GDP powered by the American Consumer, the fortunes of our industry are directly affected by this cohort. Construction booms when the economy expands, and the consumer engine is always behind it.