Why has America’s economy gone K-shaped?

The rich get richer and the poor get poorer. That old saying has taken on a new label in 2025. America’s economy is increasingly “K-shaped.”

The term is used to describe when “wealthy consumers do well and spend freely” while folks in lower tax brackets “struggle and scrimp,” said Morning Brew. Evidence of a K-shaped economy is “popping up everywhere.” The richest Americans are now enjoying the fruits of a “booming stock market” and a steep rise in home values, while everybody else is increasingly challenged by a “shaky job market, high interest rates, and/or inflation.” That could cause “social and political instability,” said University of Michigan economist Betsey Stevenson.

What did the commentators say?

This phenomenon creates ripple effects throughout the economy. Everybody has to buy “deodorant and soap and toothpaste,” said Numerator’s Leo Feler to Marketplace, but middle-income Americans are pulling back on “things like toys, electronics, sporting goods, apparel.” There are signs the gap will only widen. A new report says the wealth of America’s 10 richest billionaires “ballooned by $698 billion” in the last year, said The Daily Beast. America’s economic policies are “driving inequality to new heights,” said Oxfam America.

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“Consider the burrito,” David Goldman said at CNN. Chipotle last week cut its earnings forecast for the third consecutive quarter because the chain’s “core customers” of younger, lower-income consumers are “starting to skip the guac” and cutting back on their spending. Big companies are seeing the divide: Coca-Cola is seeing “growth in its high-end brands” like Topo Chico, Smartwater and Fairlife, but is “cutting sizes (and prices)” on lower-end brands to drive sales among struggling lower-income customers. The damage will be difficult to repair. America’s two-tier economy has been “increasingly bifurcated for quite some time.”

There is “room” for the argument that a K-shaped economy is “no bad thing,” said John Authers at Bloomberg. Poorer Americans would “benefit from lower interest rates from the Federal Reserve,” which would then strengthen the “wealth and spending of the affluent.” Certainly, the overall stock market has not been dragged down by the struggles of car loan companies and fast food chains like Krispy Kreme. From a macro-economic view, “bad times for the poor don’t matter so much if they’re outbalanced by gains for the wealthy.”

What next?

The American economy is at “risk of wobble” as lower-income consumers struggle, said Reuters. Corporate earnings will be tested as “rising healthcare costs, the potential loss of federal food benefits and a wobbly job market outlook” affect the earning power of “less affluent” American households. Federal Reserve Chair Jerome Powell is taking notice of the K-shaped economy as he looks to the future, particularly as “rising auto loan defaults and intense bargain shopping” offer signs of distress.

A recent Moody’s report found that the top 20% of earners are responsible for America’s economic growth, said Fortune. Economists are worried. “We are losing the middle class,” said Ohio State University’s Lucia Dunn to the outlet.