For two years, business and finance news have been inundated with talk of the K-shaped economy. The idea is that the economy has forked in two: one arm rising for the people who own assets and keep spending, one arm falling for everyone else, squeezed by housing costs and years of inflation. Two Americas, haves and have-nots.
This earnings season, the two largest consumer lenders in the country were asked about it directly and said they don’t see it. Jeremy Barnum at JPMorgan said that across “all the various dimensions, there’s not like that much there in terms to support the K-shape narrative.” Richard Fairbank at Capital One said his company doesn’t “in our own numbers, see this K-shape economy that a lot of people talk about.” American Express said flatly there’s “no evidence of a general slowdown.” Credit improved almost everywhere. The main cabin posted a second straight quarter of growth at both Delta and United.
Between them, these companies see a staggering share of every dollar that moves in this country, and they just told you the letter is wrong.
But the K doesn’t fail because everything is great. It fails on arithmetic. It has two tiers, and the consumer economy has three: a top that’s pulling away, a middle that’s genuinely doing well without keeping pace, and a bottom that isn’t moving at all.
The right letter is an F
Every quarter we watch a basket of companies to take the temperature of the consumer, because between them they see how most of the country spends its money. Amex and Delta read the wealthier consumer. Amex filters its base with an annual fee, so you’re looking at affluent households by construction, and Delta reads the same cohort from the premium cabin. JPMorgan and United read the middle: mass-market checking, prime cards, coach seats. Capital One reaches furthest down, since it lends deeper into subprime than any other major issuer.
Thinking of consumers as falling into two groups is the problem, because the biggest group in the country belongs to neither one. The top is pulling away. The bottom is stuck and not doing well. But most of the country sits in between with jobs, growing wages, clean credit, and rising checking balances. They are climbing steadily and nowhere near the top’s pace.
That’s what the K can’t accommodate. Lump the middle in with the top, and you’ve dressed up a group that’s doing fine as one that’s pulling away. Lump it in with the bottom, and you’re claiming most of America is in decline, which the bank data flatly contradicts. It’s sorting three groups into two bins.
What you actually have is a bar graph: horizontal bars off a vertical axis, and the only question is how far each one extends. The top bar goes way out. The middle bar goes out, less far. The bottom bar never leaves the axis. Two bars extending and a third that doesn’t. That’s an F. Make whatever joke you want about the grade.
Average household income makes the shape obvious. The top 20% average $298,571. The middle 60% average $85,224. The bottom 20% average $17,731.
And it isn’t just income. When the New York Fed split real spending growth into three income tiers, they found the same shape: since 2023, high earners grew real spending by about 8%, the middle by a solid 3%, the bottom by barely 1%.
The bottom is the hardest tier to see
Every company named above lends to people who pass a credit check, which means the bottom tier is the one they see least. Fairbank said as much in the same breath as denying the K: Capital One doesn’t participate in “the lowest end of the marketplace, where maybe those things are being experienced in the economy.”
That matters for how you read this earnings season. When prime lenders report healthy customers, they’re describing the customers they have. The tier below that shows up mostly in government data, and there it looks the way it usually does: low wages, thin savings, no assets, and every dollar of gas and groceries hitting harder. The bottom 20% spends 76.9% of its budget on essentials. The top 20% spends just 58.9%.
There is some genuinely good news here. The Wall Street Journal reported this week that working-class paychecks are rising, with 25th-percentile earnings up 5.5% in the second quarter against 3.9% inflation. That’s real, and it’s the first sustained gain this group has seen in a while. It’s also recent, and it follows a decade in which this tier went nowhere.
What’s actually driving the top
Amex just posted its fastest spend growth in three years, with U.S. consumer spending up 11%, the best print since early 2018 excluding the pandemic. Delta and United told the same story from the travel side, with premium cabins growing well ahead of the rest of the business. United’s premium revenue rose 16% and contracted business revenue rose 27%.
Here’s the part worth paying attention to. That acceleration isn’t coming from paychecks. Workers at the 75th percentile of earnings saw weekly pay grow just over 1% in the second quarter, the slowest of any quartile and down from nearly 6% two years ago, against 3.9% inflation. Wage growth at the high end has slowed sharply, and spending at the high end has not.
Delta’s CEO pointed to it on the earnings call. The economy, Ed Bastian said, is “supported by strong employment, rising household incomes, and significant wealth accumulation.”
Take note of that third driver. That’s the wealth effect in action: when the market rises, so does spending, regardless of what’s happening to income. It’s how the top keeps pulling away while its wage growth slows.
The top owns the market, and nobody else really does. Per the Federal Reserve, the top 20% hold 87% of all corporate equities. The middle 60% hold 11%. The bottom 20% hold under 2%. Bank of America reaches the same conclusion in its Consumer Checkpoint research: higher-income spending is benefiting from wealth effects, and the gap between higher- and middle-income spending tracks the S&P 500. The bank whose card data shows the divergence points to equities to explain it.
That’s the mechanism behind the top bar. When the market rises, the top feels it, the middle feels a little of it, and the bottom doesn’t feel it at all.
What this means
The consumer is fine. That isn’t in dispute, and the earnings confirm it. But “fine” is doing a lot of work in that sentence, and the K-shaped framing obscures more than it explains.
The top is doing great, with increased spending bolstered by the wealth effect. The middle is doing well, with real income gains and clean credit, just not at the top’s pace. The bottom is finally seeing wage gains after a long stretch of nothing, from a level low enough that it doesn’t take much to undo them.
Three tiers, three different stories. Any framework with two of them is going to put the biggest group in the country on the wrong side of the line.
