K-shaped economy debate turns on which data economists use

The k shaped economy debate has intensified after Treasury Secretary Scott Bessent said on Aug. 4 that the divide was over and the U.S. had become more C-shaped. For investors and households, the argument matters because the label depends on which part of the economy is measured: paychecks and card spending can improve while debt stress and housing costs remain difficult.

These letters are interpretive shorthand, rather than official economic classifications. They can describe different income groups, different indicators and different time periods, so more than one can capture part of the picture at once.

What is a K-shaped economy?

A K-shaped economy describes households moving in different directions. Higher-income households gain more in measures such as wealth, spending or financial security, while lower-income households face weaker outcomes. The two diverging paths resemble the upper and lower arms of the letter K.

The term emerged during the Covid-19 pandemic and became widely used in 2025, according to PBS News. A C-shaped economy, by contrast, refers to a narrowing gap between groups. It does not require affluent consumers to lose ground. An E-shaped economy adds a third group: high-income households at the top, a squeezed middle and a struggling lower tier.

Why are economists using different letters?

Bessent’s C-shaped case centers on recent gains for lower-income workers. CNBC reported that Bank of America Institute data showed after-tax wages for lower-income households rose at a 5.2% annual pace in July, exceeding higher-income wage growth for the first time since December 2024. Lower-income spending rose 5.4% from a year earlier, and debit- and credit-card spending converged across income groups, CNBC reported.

Hilton CEO Christopher Nassetta has pointed to a similar pattern in travel demand. He said the hotel company had seen stronger results in middle- and upper-middle market segments, describing it as a C-shaped economy. That is a company-level observation, however, rather than a reading on the full U.S. economy.

The counterargument is that faster wage growth does not erase financial pressure. FICO’s Ethan Dornhelm said borrowers with lower credit scores showed slight increases in the share of mortgage and auto loans that were at least 90 days delinquent. CNBC also reported that the average first-time homebuyer’s monthly mortgage payment reached $2,563, 57% above its April 2019 level, while housing affordability has broadly been depressed since 2022.

Consumer mood points in the same complicated direction. The University of Michigan survey, as reported by CNBC, found sentiment was down 11% in August from a year earlier, with low- and middle-income respondents experiencing an outsized decline that month. Anthony Chan, JPMorgan’s former chief economist, said higher energy costs can weigh especially heavily on lower-income households because they devote more of their income to energy.

What data should investors watch?

The useful test is whether the wage and spending convergence continues alongside improving credit health, housing affordability and consumer sentiment. The Federal Reserve’s Distributional Financial Accounts offer quarterly estimates of household wealth by wealth and income group, providing another way to track differences across households. The available evidence does not establish a single winning letter. It shows why a headline based on one indicator can miss pressures visible in another.

This story draws on original reporting from CNBC.