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Originally Posted By OPGenesis⏩

Have U.S. consumers gone “K-shaped”? A review of the data


The term “K-shaped economy” arose after the COVID-19
pandemic to characterize the diverging economic paths of high-income Americans
and everyone else. It became ubiquitous in 2025, one of the “biggest business
buzzwords” of the year

Growing U.S. inequality in income and wealth is not a new phenomenon. But the recent K-shaped story is often told in terms of consumption
growth—of rich shoppers powering the economy with their spending while others
pull back. Retailers remark on their bifurcated customer base; airlines and
hotels tout the boom in their premium fares and luxury hotel brands.

Like the contemporaneous assertion of an American “vibecession,” the conventional wisdom around the K-shaped economy has depended heavily on such anecdotes. Beyond the vibe, what case do the available data sources make for K-shaped consumption? Comparing available measures is much like setting proverbial apples and oranges next to one another. But the overall
picture is more complicated than the media headlines suggest.


Moody’s: K-shaped in a big way (but with skeptics)

The credit-rating agency Moody’s Analytics shares its
proprietary analysis primarily via social media and financial news outlets. Moody’s calculates a steep, K-shaped spike in spending growth by the top 10 percent of households (by income) starting in 2020. In early 2026 via The Washington Post, Moody’s reported that spending by the top 10 percent grew 62
percent between third quarter 2020 and third quarter 2025, much more than any other income group (Figure 1A).







Note: Q3-2020 to Q3-2025, based on 4-quarter moving average
of nominal personal outlays remaining after calculated household savings for
each income group.

Source: Moody's Analytics via The Washington Post, applying
Federal Reserve data.

For the most recent 12 months, spending by these top earners
grew more than 4 percent in nominal terms; growth for all other groupings in 2025 was close to 3 percent. These households, Moody’s says, now account for more than 45 percent of spending while the bottom 60 percent of households comprise just 23 percent of spending (Figure 1B). 

Each prior update from Moody’s garnered headlines through
2025, although the methodology and stark findings have drawn skeptics. It is not a direct measure of consumption expenditures by households. Rather, Moody’s works backward from financial and wealth data to estimate the average household savings for each income grouping.1 They count whatever disposable income
remains—technically, “personal outlays”— as a broad measure of spending.


Critics argue that the concentration of spending among the
top 10 percent is implausible, and that converting macroeconomic data on financial asset flows to a measure of household spending makes improper assumptions. Nonetheless, the findings remain a well-publicized data point in media coverage, staking out the upper bound of the K-shaped consumption story.

 

Bank of America: More recent, and more E-shaped than
K-shaped

Another private sector report, Consumer Checkpoint from the Bank of America Institute, began including summaries of spending growth by
income in late 2024. The monthly report provides a near-real-time view, albeit
limited to credit and debit card spending by Bank of America customers.3

While Moody’s pegs a sharp break after 2020, Bank of America
did not observe a widening gap in their data until mid-2025, when a large
separation in spending growth opened between lower-, middle-, and upper-income
customers—arguably more “E” than “K” (Figure 2).



Spending by the lower third of cardholders actually shrunk
in mid-2025 and remained nearly flat until early 2026, when Bank of America
noted a slight narrowing of spending growth gaps in February.

Unlike Moody’s, the Bank of America reports are not
estimates, but a straightforward account of actual spending by households.
However, the view is limited to purchases on credit and debit cards (presumably
missing rent payments and some very large purchases) and the subset of
Americans with cards from one particular bank, which might underrepresent
certain regions of the U.S. and segments of the income spectrum.

Dividing households into thirds makes it hard to compare
directly with Moody’s, which finds most of the action at the very highest
incomes. The Bank of America terciles are roughly comparable, however, to a new
data series from the New York Fed.

 


New York Fed: A subtle trend, if any

 
The New York Fed recently rebooted the consumer spending component of its quarterly Economic Heterogeneity
Indicators, including separate measures for retail spending, gas stations, and
groceries. The data come from a panel of 200,000 households surveyed by
Numerator, a market research firm.

 


Like Bank of America, the New York Fed breaks households
into thirds. Unlike Bank of America, they do not find wide
dispersion in retail spending growth during 2025 (Figure 3; retail spending
excluding cars). Over the five years of available data, the growth rates move in
relative harmony.

 

 

The New York Fed’s results breaking out gas and groceries are similarly bunched through most of those series, although
food and beverage spending growth was notably higher for low-income households in 2025.

  

If there is a K-shaped trend since the pandemic, it is subtle. Slightly faster spending growth, on average, for
higher- and middle-income households emerges over time as higher
cumulative growth in nominal spending (Figure 4). This cumulative view shows
these gaps widened primarily in 2023 and have been mostly stable since




Nominal spending growth since 2020 ranges from 29 percent
for low-income households to 36 percent for high-income ones. This is much less
than the 62 percent nominal growth in personal outlays reported by Moody’s for
top-10-percent households during roughly the same period. Spending growth for
the top, middle, and bottom also remain much more tightly bunched than the
nearly 2-to-1 difference Moody’s reports between these high-income households
and all other groups.

Consumer Expenditure Surveys: Lagging data, nothing K-shaped


In the last week of 2025, the U.S. Bureau of Labor Statistics released its Consumer Expenditure Surveys(CE), the annual report on household spending. The CE arrived two months late because of the fall’s federal government shutdown.

Unlike the primary government measure of spending in the U.S. economy, personal consumption expenditures (PCE), the CE is survey-based—and therefore able to report straightforward results by quintiles and deciles of household income.4 However, the CE comes with caveats about what is in (“out of pocket” spending reported by households on goods or services, including rent) and what is out (mortgage and auto loan principal payments; spending on households’ behalf by employers, government, or nonprofits—especially on health care).5The CE has also diverged in recent decades from expenditures captured by the PCE, with the CE-to-PCE ratio declining over time to less than 60 percent today.

The CE’s comprehensive, survey-based approach also comes with a substantial lag: It captures household spending only through the end of 2024. With these various caveats established, the latest CE results offer little support for the conventional wisdom of a consistent, K-shaped pattern in recent years. From 2022 through 2024, as CE spending growth by households slowed overall, the results by income group defy easy summary. But one thing they are not, is K-shaped (Figure 5).




Spending growth by households in the 21st to 40thpercentile of income was notably sluggish in 2024. However, the lowest-income U.S. households in the survey increased their spending nearly 4 percent—more than any other quintile and the only group to have faster spending growth than the prior year.6 Meanwhile, spending growth by the highest-earning households slowed sharply. CE households in the top 10 percent actually spent less in 2024 than the year before (even before adjusting for inflation).The CE confirms high-income households account for a disproportionate share of spending, though much less lopsided than the headline-making numbers from Moody’s. The top 10 percent of households in the CE accounted for 23 percent of spending (Figure 6).




In 2024 the highest-earning 30 percent of households accounted for more than half of out-of-pocket consumer spending in the CE. The bottom half of households by income accounted for less than 30 percent.

CONT...

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