Economists have argued the U.S. is experiencing a “K-shaped economy” in which the rich get richer while working Americans increasingly fall behind. Now the Trump administration is pushing back. Treasury Secretary Scott Bessent is “sick of hearing about this K-shaped economy,” he said on CNBC this month, insisting that lower-wage workers are seeing improvements under GOP policies.
Is the gap narrowing?
The U.S. wealth gap “appears to be narrowing,” David Goldman and Rachel Siegel said at CNN. Wages and spending for the rich outpaces “growth in paychecks and expenses for the poor” in a K-shaped economy but recent reporting suggests “those lines seem to be getting closer together.” One June report found the gap in spending growth between high- and low-wage earners is the “narrowest it has been in three years.” The remaining disparity is “not getting wider in absolute terms,” PNC economist Brian LeBlanc said to the outlet.
The K-shaped economy was “increasingly reliant” on the spending of wealthy Americans on goods and services, said Axios. That made the U.S. economy vulnerable to a “wealth shock” if the rich were forced to curtail their purchases due to a falling stock market or some other crisis. But “lower- and middle-income Americans are catching up” and putting U.S. consumer spending “on a more resilient footing.” One indicator: After-tax wages among lower-income workers “rose 5.2% in July from the same period a year ago.”
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Analysts believe the “shrinking gap largely reflects an improving labor market” in which “more lower-income households are working and collecting paychecks,” said Axios. That signifies there is not “much there in terms of support for the K-shape narrative,” JPMorgan Chase’s Jeremy Barnum said to investors last month.
There are skeptics. The K-shaped economy “remains firmly intact,” Moody Analytics’ Mark Zandi said in a July post at LinkedIn. Households with incomes above $200,000 “are powering overall spending,” with the top 20% of earners accounting for an “astonishing nearly 60% of personal outlays.” Spending by the bottom 80% of the country, meanwhile, remains “unchanged after inflation.” It is a gap that has “persisted since the pandemic” and the numbers show “no sign that the trend line will reverse soon.”
‘Slightly softer prongs’
It is “tempting to conclude that the K-shaped recovery is behind us,” former JPMorgan Chase economist Anthony Chan said at The People’s Economist. The United States does “seem to be making progress,” but more evidence is necessary to determine that the trends have changed. “We may need more than one calendar quarter of good news to fully eliminate the K-shaped economy designation.”
For now, the U.S. economy might best be described as K-shaped but with “slightly softer prongs,” Juliana Kaplan said at Business Insider. Lower earners are “seeing slightly more stability” even if higher earners are still propelling consumer spending. “Trying to describe the economy with a letter shape might just be alphabet soup.”
