Economy's Shape Shifts: From K to 'E'?

Recent economic analysis suggests the familiar 'K-shaped economy,' characterized by a widening gap between the affluent and the rest, is shifting. An emerging 'E' shape might better describe the current economic trajectory, with middle-class consumers' spending and wage growth differentiating from those with lower incomes. This divergence, noted by Bank of America economists, indicates that while higher-income households lead, the gap between middle and lower earners is expanding.

Data from January 2026 shows higher-income households experienced 2.5% spending growth, while middle-income households saw almost flat growth at 1%, and lower-income households grew by only 0.3%. A similar pattern is observed in wage growth, with the gap between higher- and middle-income households at its largest in nearly five years. This follows decades of increasing wealth concentration; by Q3 2025, the top 0.1% held nearly six times the wealth of the bottom 50% combined.

Despite challenges like elevated interest rates and living costs, U.S. consumers have shown resilience. Delinquency rates on mortgages are near normal levels, but deterioration is concentrated in lower-income areas with declining home prices. Consumers are also adopting savvier spending habits, with increased spending at value grocers, especially among lower-income households. Bank balances have been supported by wage growth and lower gas prices, helping offset inflationary pressures.