Despite the Dow Jones Industrial Average surpassing the 50,000 mark for the first time last Friday, setting a new record, a prominent financial strategist has issued a warning that market data obscures the difficult reality facing ordinary citizens. In a recent report published on February 9, David Kelly, Chief Global Strategist at J.P. Morgan Asset Management, provided a stark assessment of the nation's financial health.
He described the economy as one characterized by weak consumption, sluggish employment growth, and low public morale, directly challenging the optimism fueled by the recent technology-led market rebound.
Kelly emphasized a significant disconnect between what he termed a "frothy" stock market—supported by liquidity and strong performances from large tech stocks—and a sluggish real economy struggling under structural pressures. While financial headlines celebrate new market highs, Kelly pointed out that underlying data suggests the benefits are not reaching average American households.
**Weak Consumption**
Kelly's analysis characterized the start of the first quarter as "turbulent," marked by a notable contraction in consumer activity. He argued that if temporary boosts from tax refunds or potential "tariff rebate checks" are excluded, the real economy's growth momentum appears to be stalling.
Data paints a concerning picture for retail and services. January's light vehicle sales plummeted to an annualized rate of 14.9 million units, a monthly low not seen in over three years. Concurrently, the travel industry, a key indicator of consumer spending, has stalled; Transportation Security Administration (TSA) passenger data showed no growth in January, and hotel occupancy rates fell 1% year-over-year.
The housing market outlook is perhaps most troubling. Data from the National Association of Home Builders indicates that traffic from potential buyers remains very weak, with the index falling to 23 (a reading above 50 indicates builder confidence). Meanwhile, the rental vacancy rate has climbed to 7.2%, the highest level since 2017.
Kelly contended that, in short, despite a booming stock market and surging capital expenditure in the tech sector, large parts of the real economy remain very slow.
**Sluggish Employment Growth**
Despite administration promises of robust growth, the labor market is showing signs of weakness. Kelly described the current dynamic as "low hiring, low firing, low growth," echoing previous comments from Federal Reserve Chair Jerome Powell.
Job openings have fallen to a five-year low, dropping from 6.9 million in November to 6.5 million in December. While layoffs remain relatively contained, the engine of job creation has stalled. The gap between the proportion of workers who believe "jobs are plentiful" and those who find it "hard to get a job" has narrowed to its smallest margin since February 2021.
Kelly identified a demographic crisis as a key driver of this stagnation. Census Bureau estimates indicate the working-age population (18-64) is now shrinking by 20,000 people per month, a trend exacerbated by a sharp slowdown in net immigration. He noted that in an economy near full employment, significant job gains are impossible if the pool of available labor is shrinking.
**Low Morale and Deepening Inequality**
The strategist argued that "low public morale" reflects deepening economic inequality. While the stock market boom has enriched the wealthiest households, median household income growth has significantly lagged behind average income growth.
Kelly explained that the median American household is far worse off compared to the wealthiest households. In 2024, the gap between average and median income reached 45%, a disparity that has widened over decades. This inequality leaves most Americans feeling left behind, contributing to consumer confidence hitting a 10-year low.
Albert Edwards, a strategist at Societe Generale, expressed a similar view in a report last week.
He noted that the emergence of the AI productivity "miracle" has a downside. While consumption continues, real U.S. household income has stagnated, and he mentioned difficulties for college graduates finding employment. Edwards added that real household income has been flat for about six months, with the year-over-year growth rate plunging to 1%, while the household savings rate has collapsed to 3.5%.
Edwards pointed out that, aside from a temporary dip during the pandemic due to stimulus checks, this is the lowest level seen since before the 2008 financial crisis.
**Political Consequences**
Kelly warned that this economic dissatisfaction could have direct political consequences for the administration. With midterm elections approaching in November, historical trends are unfavorable for the party in power, which typically loses an average of 22 House seats in midterm cycles.
Recent analysis suggests the House of Representatives is almost certain to return to Democratic control, with Republican strategists increasingly concerned about losing the Senate. Such an outcome would represent a "political earthquake," effectively hamstringing the final two years of the presidential term. Issues like immigration and the economy, once perceived as advantages, have now become liabilities.
Given the current slim majority of just five seats, Kelly predicts the House will flip to Democratic control. This shift could lead to political gridlock in Washington, effectively ending the prospect of further fiscal stimulus before the 2028 presidential election.
He concluded that public discontent may subside in the coming months but is likely to resurface later this year, potentially restraining growth, inflation, interest rates, and returns on financial assets within the next 12 months.
Edwards framed the challenge for economic managers as a situation where a "frenzied Wall Street" is propping up the real economy, suggesting conditions could rapidly become "interesting."