The U.S. economy may no longer be characterized simply by the gap between its biggest winners and struggling losers, but could instead be fracturing into several tiers of financial reality.
While economists have in recent months issued several warnings about a deep, “K-shaped” divide developing within the economy—where those at the top see greater success as the lower rungs face mounting challenges—a new analysis from Bank of America shows that the disparity exists not only between the country’s poorest and most affluent members.
Researchers found that in terms of income growth, the American middle class may also be slipping further behind the top earners, creating an additional “K” and changing the overall pattern into what Fortune described as an “E-shaped” economy.
Why It Matters
While every advanced economy exhibits at least some divergence between the fortunes of its richest and poorest, experts have warned that this divide appears to be deepening at an alarming—and unsustainable—rate in the U.S. Stock market, real estate and other investment gains have compounded the successes of the upper class compared to those without the means of owning such assets, who are also now battling rising prices, ballooning debt levels and a weakened job market.
What To Know
According to Bank of America’s report, based on internal data, a K-shaped divergence in both spending and income growth between middle- and higher-income households is emerging.
Researchers found that, in January, the gap in spending growth was its widest since mid-2022. Year over year, higher-income consumers saw this increase by 2.5 percent, compared to 1 percent and 0.3 percent for the middle- and lower-income brackets, respectively.
“A similar pattern is emerging in after-tax wage growth, with the gap between higher- and middle-income households at its largest in nearly five years,” the report said. “While higher-income households’ wage growth was 3.7 percent YoY in January, a solid improvement from the 3.3 percent YoY in December, middle-income families’ wage growth saw only a marginal improvement, increasing to just under 1.6 percent YoY in January from over 1.5 percent in December.”
The researchers noted one “positive” development: that the divergence in wage growth between the richest and poorest had not notably widened since the fall. Still, the report said housing costs were now proving an even greater economic drag on middle- and lower-income Americans.
“For around a quarter of lower- and middle-income households—a notable jump from the 20 percent share in 2019—rent swallows up more than half their yearly income,” researchers wrote.
What People Are Saying
Bank of America researchers wrote in Wednesday’s note: “Income‑based divergence in spending and wage growth persists, and we are concerned that a ‘K’ shape is opening up between higher-income households and middle-income households, alongside the existing gap with lower-income households.”
Ernst & Young Chief Economist Gregory Daco said last week: “When you look at business investment, there is polarization between those that are focused on AI investment and those that are not. There is polarization between large businesses and small businesses that are struggling more in the face of some of these policy headwinds. So it’s not necessarily a K-shaped economy as much as it is a polarized economy within which you’re still seeing strong averages.”
What Happens Next
Most economists are predicting robust economic growth and strong gains for U.S. equities in 2026 as in 2025, but they have cautioned that less affluent consumers will continue to grapple with rising prices and a slowdown in the labor market.
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