Was Bessent Right? The U.S. Economy May No Longer Be So 'K-Shaped'

According to Yahoo Finance, U.S. Treasury Secretary Scott Bessent recently declared that the 'K-shaped economy in America has ended.' A new study indicates he may be right.

For an extended period, there has been a clear divergence between high-income and low-income households in terms of spending and income patterns—a phenomenon known as the 'K-shaped economy,' where higher earners continue spending, forming the upper arm of the 'K,' while lower earners cut back, forming the lower arm. However, this gap is now beginning to close again.

A team of economists at the Bank of America Institute, led by David Tinsley, wrote in a report last week: 'As of July, spending and wage growth have largely converged across income groups, except for the top 5%, who remain ahead of others.'

In July, financial and credit card spending across all income groups rose 5% year-over-year, with low-income households increasing by 5.4% and middle-income households by 4.9%.

Strong wage growth among low- and middle-income earners may be driving the narrowing of the consumption gap. In July, after-tax wages for low-income consumers surged 5.2% compared to the previous year, while middle-income earners saw a 4.2% increase.

The report notes: 'The rise in wage growth appears to be making low- and middle-income households look more “balanced,” with the gap between spending growth and wage growth shrinking. In fact, for low-income households, this gap has essentially disappeared.'

Still, even as low- and middle-income groups narrow some of the spending gaps, they remain unable to keep pace with the top 5% of earners.

The highest-earning 5% continue to spend freely, even if their income growth isn’t as rapid. Many high-income individuals feel confident spending because they hold substantial assets such as stocks and have benefited from the nearly 20% rise in the S&P 500 index between July 2025 and July 2026.

On categories like airfare, apparel, and accommodation, high-income households’ spending growth still significantly outpaces that of low-income households, although lower-income groups have started closing the gap over the past six months.

The report states: 'We believe the current narrowing of the “K-shaped” divergence may have a positive impact on overall consumer spending. Notably, the convergence in spending growth appears to be moving upward—low- and middle-income households are closing the gap with higher-income groups.'