K-shaped economy is real, per New York Fed research
Summary
New research from the Federal Reserve Bank of New York shows that spending growth in the U.S. economy is uneven, with richer households increasing their spending much more than middle- and low-income households. This pattern, called a K-shaped economy, means the economy depends heavily on wealthy consumers, which could be risky if financial markets fall.Key Facts
- Spending growth since January 2023 has been highest for households earning over $125,000, with about 7.6% real spending growth by March 2026.
- Middle-income households saw about 3% growth, while low-income households (under $40,000) experienced just over 1% growth.
- Before the COVID-19 pandemic, lower-income households’ spending grew faster than that of wealthier ones.
- The spending gap widened after pandemic relief programs ended in 2023.
- Wealth gains from financial assets largely explain the higher spending growth among rich households.
- The top 1% of earners increased their real net worth by more than 25% since 2023, while the middle 40% gained less than 10%.
- Real spending recently declined across all income groups, but the difference between rich and poor persists.
- The economy’s heavy reliance on high-income consumers may create vulnerability to a financial market downturn.
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