Corporate profits as a share of the economy sit at 12.4 percent. Capital spending as a share sits at 14.2 percent. Those two numbers together are about as healthy as this economy gets, and they are the reason we have been telling you for months that the odds of a sudden recession are lower than the headlines suggest.

And yet real wages are sliding. A new pickup truck now costs a worker 1,104 hours of labor, up 4 percent from a year ago. Consumer sentiment sits at 49.5, which is the kind of reading you see when people feel squeezed. Both things are happening at the same time, in the same economy, and neither one is wrong.

This week we want to explain how that is possible, because understanding the tension tells you more about the next twelve months than any single data point will.

Two economies, one set of books

Start with the profit picture. When corporate profits run above 12 percent of total economic output, businesses tend to invest. The capital spending number confirms it: 14.2 percent of GDP is a genuine commitment of real resources into the productive base of the economy. That kind of investment does not happen when executives are scared. It happens when margins are good and order books look solid.

The Atlanta Fed’s current read on third-quarter growth is running well above 4 percent at an annualized pace, with final sales up around 2.5 percent. The economy, measured in dollars flowing through it, is expanding fast. Nominal output is growing above 5 percent annually. That is not a stagnant backdrop.

So where is the squeeze coming from? Compensation’s share of total economic output has fallen to around 50 percent, an unusually sharp drop outside of recession recoveries. Profits are capturing a larger slice of a growing pie, which means the pie is bigger but many workers are getting a thinner slice of it. The PCE inflation gauge the Fed targets shows prices up 3.67 percent over the past year on the headline reading, and 3.29 percent on the core. Wages for most workers are not keeping up.

The households that own assets, homes that have roughly doubled in value over the past five years, and a stock market up about 19 percent over the past year, are in genuinely strong shape. Two-thirds of American adults live in owner-occupied homes. The typical mortgage holder who locked in a rate around 3 percent five or six years ago is sitting on an unrealized gain that dwarfs their annual income. That household is not cutting back hard.

The household renting an apartment, buying groceries, and filling a gas tank is living a different story. Consumer credit growth is running at just 2.4 percent annually. Loan delinquency rates on credit cards sit at 2.85 percent and mortgage delinquencies at 1.86 percent, neither at an alarming level, but the direction of pressure on stretched borrowers is clear. Aggregate debt service as a share of household income sits at 11.16 percent, which is manageable but leaves little cushion when prices keep climbing.