The Hollow Boom: Why Record Spending Is Masking a Silent Crisis

If you look at the raw data, the US economy in late 2025 appears to be a juggernaut. Gross Domestic Product (GDP) is up. Consumer spending—the engine that drives 70% of the American economy—is hitting record highs. Unemployment remains relatively low. By every traditional metric used by Wall Street and the Federal Reserve, we should be in a "Golden Age" of prosperity.

Yet, ask the average American how they feel, and you get a very different story. Consumer Sentiment is plumbing depths usually reserved for market crashes. The University of Michigan Sentiment Index is flashing warning signs, and approval ratings for economic management are in the gutter.

Economists and pundits are baffled. They ask, "Why are people so gloomy when they are spending so much money?" They label it a "Vibecession"—implying the bad feelings are just a mood, detached from reality.

But they are wrong. The gloom isn't a delusion; it is a rational response to a fundamental shift in what we are spending money on. The economy has shifted from "Joyful Spending" (buying things that improve life) to "Survival Spending" (paying more just to exist). When the cost of healthcare, childcare, and insurance skyrockets, consumer spending goes up, driving GDP higher—but the consumer feels poorer than ever.

This is the story of the Hollow Boom.

Part I: The Two Types of Spending

To understand why sentiment is crashing while spending rises, we have to distinguish between two radically different types of economic activity. In the eyes of GDP, every dollar spent is equal. But in the eyes of the human consumer, they are not.

1. Discretionary Spending (The "Joy" Economy)

This is the spending that fuels optimism. It includes:

• Buying a new car with better features
• Taking a vacation
• Dining out at a new restaurant
• Upgrading to the latest smartphone

When this type of spending is high, Consumer Sentiment soars. This spending represents choice. It signals that the consumer has surplus capital and is confident enough in their future earnings to trade cash for pleasure or utility.

2. Non-Discretionary Spending (The "Survival" Economy)

This is the spending that fuels resentment. It includes:

• Health insurance premiums and deductibles
• Childcare and daycare fees
• Rent increases or property taxes
• Auto insurance and maintenance

When this type of spending rises, it technically boosts GDP. If your daycare raises its rates from $1,500 to $2,200 a month, you are "spending" $700 more. To the Federal Reserve, that looks like economic growth. But to you, that is $700 vanished—money that could have gone to a vacation or savings, now burnt just to maintain the status quo.

In 2025, we are witnessing a massive rotation from Type 1 to Type 2. The "spending boom" is not a boom in lifestyle; it is a boom in the cost of overhead.

Part II: The Crowding Out Effect

The specific mechanism destroying consumer sentiment is known as "Crowding Out."

Household budgets are finite. When the cost of "Must-Haves" (inelastic goods) rises, it aggressively crowds out the budget for "Wants" (elastic goods).

The Childcare Crisis

Let's look at the example of childcare. In many states, the cost of putting two children in daycare now exceeds the average mortgage payment. This is a sector with "inelastic demand." Parents cannot simply choose not to send their kids to care if they want to keep their jobs. They are forced to pay the market rate.

If a family's childcare costs rise by 20% year-over-year, that family is spending significantly more money. An economist looking at a spreadsheet sees a 20% jump in the "Childcare Services" sector and marks it as positive consumption.

However, that family must now cut $500 elsewhere. They cancel their streaming services, they stop eating out, and they delay buying a new car. The "New Car" purchase is the one that makes them feel successful. The "Daycare Bill" is the one that makes them feel trapped. By swapping the former for the latter, their financial sentiment collapses, even though their total spending has increased.

The Healthcare Sinkhole

Healthcare operates similarly. Medical inflation often outpaces general inflation. If you are paying higher premiums for the same coverage, or paying more out-of-pocket for the same doctor's visit, your "consumption" figures are up. You are contributing more to the economy's total velocity of money.

But you don't feel richer for it. You feel exploited. This disconnect is why you can have a "strong economy" on paper and a furious electorate in reality. We are running faster just to stay in the same place.

Part III: Why Consumer Sentiment Metrics Are Crashing

To understand the severity of this, we have to look at how Consumer Sentiment is actually calculated. The University of Michigan Sentiment Index, the gold standard for this metric, relies on questions that are specifically sensitive to this "Bad Spending" dynamic.

They ask questions like:

• "Would you say that you are better off or worse off financially than you were a year ago?"
• "Is now a good time for people to buy major household items?"

The "Better Off" Fallacy

Consider the family from our previous example. They got a 5% raise at work—a solid win in a normal year. But their childcare and insurance costs went up 15%.

Mathematically, their disposable income has shrunk. When the surveyor asks, "Are you better off?", the answer is a resounding NO. It doesn't matter that the GDP data shows they earned more and spent more. The utility of that money has degraded.

The "Good Time to Buy" Problem

The question regarding "major household items" (durables like refrigerators, cars, furniture) is the canary in the coal mine.

When survival costs eat up the monthly budget, the capacity for large, lump-sum purchases vanishes. Even if a consumer has a job, the psychological safety required to take on a car loan is gone because their monthly cash flow feels suffocated by essential bills.

This creates a terrifying split: Services Inflation (healthcare/childcare) stays high, forcing spending up, while Goods Deflation (electronics/cars) kicks in because nobody has money left over to buy them.

Part IV: The Wealth Illusion and Asset Inflation

Another layer to this sentiment crisis is the divergence between "Asset Wealth" and "Cash Flow Wealth."

In the 2020s, we have seen asset prices soar. Homes are worth more; the stock market is near all-time highs. For the top 10% of the economy, this generates positive sentiment. They feel rich because their net worth on paper is high.

But for the bottom 90%—and particularly the middle class—Consumer Sentiment is driven by Cash Flow, not Net Worth. You cannot pay for daycare with your Zillow estimate. You cannot pay your deductible with your 401k balance (unless you liquidate it).

When "Must-Have" expenses rise, they attack monthly cash flow. A family might be "worth" $500,000 on paper because of their house, but if they have $50 left in their checking account at the end of the month because of medical bills, their sentiment will range from panic to despair.

The media often highlights the "Wealth Effect"—the idea that rising assets make people spend more. But we are now seeing the "Poverty Effect" of cash flow constraints. The paper wealth is theoretical; the monthly bill is real.

Part V: The Trap of "Sticky" Inflation

Why is this happening now? The answer lies in the "stickiness" of service-sector inflation.

When the price of gas goes up, it usually comes back down eventually. Gas is a volatile commodity. But when the price of childcare or healthcare goes up, it almost never comes back down.

This is called the "Ratchet Effect." Service providers raise wages to attract staff, insurance companies raise premiums to cover costs, and those new prices become the floor.

Consumers are smart. They intuitively understand this. When they see gas prices spike, they get annoyed, but they know it might pass. When they see their health insurance premium jump 20%, they know that money is gone forever. This permanence breeds a deep, structural pessimism that fleeting fluctuations in stock markets cannot fix.

This realization—that the "cost of existing" has permanently reset to a higher level—is what is dragging Consumer Sentiment into the abyss, regardless of how many jobs are added to the payrolls.

Part VI: The Danger of the "Self-Fulfilling Prophecy"

Why should we care if people are grumpy as long as they keep spending?

Because eventually, the rope snaps.

Currently, consumers are bridging the gap between "Income" and "Survival Costs" by using two things:

1. Savings: Depleting the cash buffers built up during previous years
2. Credit: Credit card balances are rising as families put "Must-Haves" on plastic

This is the final stage of the Hollow Boom. High spending fueled by debt and savings depletion is not sustainable growth; it is a controlled burn of household financial health.

When the credit limits are hit and the savings run dry, spending doesn't just slow down—it hits a wall. This is the "Cliff Edge" scenario economists fear. If Consumer Sentiment remains low for too long, it signals that the consumer is exhausted. When they finally stop spending, they will stop all at once. The "Must-Haves" will get paid, but the "Wants" (retail, travel, tech, dining) will see revenue evaporate overnight.

This triggers a recession not caused by a lack of jobs, but by a lack of disposable income. It is a recession born from the high cost of living itself.

Conclusion: Don't Blame the Messenger

The next time you see a headline asking, "Why are Americans so unhappy when the economy is so good?", you will know the answer.

The economy isn't "good"—it is merely "expensive."

We are confusing activity with prosperity. We are confusing the high cost of survival with the luxury of thriving. High spending numbers driven by soaring healthcare and childcare costs are not a sign of a robust consumer; they are a sign of a consumer in a chokehold.

Consumer Sentiment is currently the only honest metric we have. It is cutting through the noise of GDP and stock tickers to tell us the truth: The price of the American Dream has gone up, and the average family is paying for it with their peace of mind.

Until the cost of the "Must-Haves" stabilizes, no amount of job growth or stock market rallies will fix the national mood. We are spending more to get less, and until that changes, the vibe—and the reality—will remain bleak.

This analysis is for educational purposes only and does not constitute personalized investment advice. Economic conditions can change rapidly and historical patterns may not repeat.