People purchase vegetables from a street vendor in New York City, U.S., August 4, 2026. REUTERS/Jeenah Moon
Treasury secretary says the U.S. has entered a “C-shaped economy,” but experts see persistent income and spending gaps
Luxury spending remains strong while lower-income households continue to struggle
Despite claims by the Trump administration that the U.S. economy has moved beyond the post-pandemic “K-shaped economy,” economists say the gap between higher- and lower-income Americans remains significant, particularly in consumer spending and household finances.
CNN reported Monday that while wages for some lower-income workers have improved, disparities in spending power and wealth accumulation continue to define the U.S. economy.
A K-shaped economy refers to an uneven recovery in which wealthier households benefit from rising asset values and robust consumer spending, while lower-income families continue to face financial hardship due to higher living costs and inflation.
Treasury Secretary Scott Bessent recently argued in an interview with CNBC that “the K-shaped economy is over,” saying the country is transitioning into what he called a “C-shaped economy,” where economic conditions are improving across income groups. He cited faster wage growth among lower-income workers, easing housing pressures, and the administration’s tax exemption for tipped income as evidence of narrowing inequality.
According to the U.S. Bureau of Labor Statistics, full-time workers in the lowest income bracket saw wages increase 5.5% over the past year, outpacing other income groups. However, many economists argue that stronger wage growth alone does not mean the broader economic divide has disappeared.
Elizabeth Pancotti, managing director at the Groundwork Collaborative, said a true “C-shaped economy” would require a meaningful narrowing of the gap between high- and low-income households.
“If we were truly seeing a C-shaped economy, we would expect much clearer evidence that economic disparities are shrinking,” she said.
Data from the Federal Reserve Bank of Atlanta also suggest that wage gains remain modest for many lower-income workers, particularly when part-time employees are included. Meanwhile, higher-income households continue to account for much of the nation’s consumer spending, leaving lower-income families with little improvement in their day-to-day financial conditions.
Housing costs remain another major challenge. Although rent increases have moderated in recent months, overall housing expenses remain elevated, and many lower-income Americans continue to struggle with affordability. Consumer confidence among lower-income households also remains considerably weaker than that of wealthier consumers.
Corporate earnings paint a similar picture. Luxury hotels, premium services, and high-end retailers continue to report healthy demand, while discount chains and budget retailers have warned of weaker spending by price-sensitive consumers.
Financial institutions have reached similar conclusions.
A big national bank said its analysis of customer accounts during the first half of the year showed that deposit growth among accounts holding more than $1 million outpaced that of accounts with balances below $10,000. The bank noted that wage growth and spending among lower-income customers improved somewhat in May and June but cautioned that the gains may have been influenced by temporary factors, including increased spending related to the FIFA World Cup. It said it remains too early to determine whether the trend will continue through the rest of the summer and into the fall.
Most economists now describe the U.S. economy as a moderated version of the K-shaped recovery rather than a fully balanced one. While conditions for lower-income households have improved modestly, significant disparities in income, wealth, and consumer spending remain.
“The K-shaped economy has not disappeared,” economists say. “Until the benefits of economic growth are shared more broadly across all income groups, inequality will remain one of the defining characteristics of the U.S. economy.”
