Economy's K-shaped divergence appears to be narrowing
Recent research suggests that the so-called 'K-shaped economy,' characterized by divergent spending patterns between high- and low-income households, is beginning to converge. Economists at Bank of America Institute noted in a report that as of July 2026, wage growth and consumer spending across income groups have largely aligned—except for the top 5% of earners who continue outpacing others. Lower- and middle-income consumers saw notable gains: debit and credit card spending rose by 5.4% and 4.9%, respectively, compared to a year ago. Strong wage growth in these income brackets contributed to this convergence, with lower-income households experiencing after-tax wage increases of 5.2%. The report suggests that the narrowing gap could be positive for overall consumer spending. Despite progress toward balance, high earners still outspend others significantly due to wealth gains from equity investments and strong performance by indices like the S&P 500.
Topics: consumer spending income inequality K-shaped economy wage growth