The Warning Signs of a ‘K-shaped’ Split in the US Economy

From household spending to the value menu at McDonald’s—experts are noticing signs of economic bifurcation.

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Concerns about a K-shaped economy — marked by a growing economic divide — have intensified in recent months.

Across Corporate America, the Federal Reserve, and among economists, policymakers, and market analysts, there’s a rising awareness of this widening split.

The term K-shaped economy comes from charts showing two diverging paths: the upper arm of the “K” represents industries and individuals enjoying strong growth, rising incomes, and increasing wealth, while the lower arm reflects those still facing financial hardship, stagnant wages, and struggling small businesses.

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“Households with higher incomes — particularly those employed in sectors such as technology, finance, and professional services — have largely prospered,” said Andrew Latham, a certified financial planner with SuperMoney.com, in an interview with The Epoch Times. “These workers often transitioned easily to remote work and benefited from rising home prices and strong stock market performance.”

In contrast, Latham noted that “many lower-wage employees, especially those in hourly or service-based positions, suffered layoffs or reduced hours during the pandemic and often lacked adequate financial reserves.”

Federal Reserve Chair Jerome Powell has also recently addressed these emerging trends shaping the U.S. economy.

“If you listen to the earnings calls or read the reports from large, publicly traded, consumer-focused companies, many are pointing to a split economy,” Fed Chair Jerome Powell told reporters during a press conference last month. “Consumers at the lower end are struggling — spending less and opting for cheaper alternatives — while higher-income households continue to spend robustly.”

Cleveland Fed President Beth Hammack echoed this view, noting that although overall consumer spending remains solid, the data increasingly reflects a two-speed economy, where financial strength and hardship coexist across different income groups.

As a result, spending by higher-income households continues to play a key role in sustaining the nation’s gross domestic product (GDP), Cleveland Fed President Beth Hammack said during the Evolving Landscape of Bank Funding Research Conference on Oct. 31.

“That’s an area of concern,” Hammack added during a fireside chat. “We’re hearing that lower-income families are under growing financial strain, facing significantly more pressure and hardship.”