The K-shaped economy isn't dead yet
From a "K" to a "C," policymakers and economists keep trying to define the economy's shape. It's leading to alphabet soup.
The concept of the K-shaped economy, where high earners continue to prosper while low earners fall further behind, remains relevant. Treasury Secretary Scott Bessent believes that the K shape is no longer applicable, and the economy has shifted to a C shape. A K-shaped economy is characterized by the rich getting richer and the poor getting poorer, while a C-shaped economy signifies a convergence of outcomes at both ends of the wealth spectrum.
Although there have been some improvements for lower earners, such as a 5.5% year-over-year wage growth for the lowest quartile of full-time workers, higher earners are still outspending and doing well. The overall trend of diverging economic outcomes has not changed significantly. Factors such as wage gains, moderating rent inflation, and favorable tax policies could potentially transform the K into a C shape.
However, even if rent inflation eases, housing costs continue to rise. The decline in consumer sentiment for both high and low earners suggests that the K-shape still dominates. Most notably, the K shape remains evident in consumer spending, with the fastest growth seen among the top 40% of earners and the slowest among the lowest quintile.
Some experts argue that the economy is more accurately described as a K with softer prongs, as high-income earners continue to drive consumer spending growth.
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