Holiday spending will top $1 trillion for the first time this year, according to the National Retail Federation. But it is the very rich who make expensive purchases that will drive much of that spending, while many lower-income Americans buy discounted versions of items or finance them with credit cards. Let’s call it the “K-shaped” economy holiday edition.
“When people talk about the K-shaped economy, they are talking about an economy that is experienced very differently across the population,” said Joanne Hsu, director of consumer surveys at the University of Michigan. The rich, represented by the upward line of the K, spend confidently. The less affluent, who are trending downward, are struggling to make ends meet. This “division,” said Dr. Hsu, is visible in consumer sentiment surveys.
“K-shaped” came into common usage in 2020 and is now ubiquitous. It is used for varying consumer outlooks, fluctuating spending at stores and restaurants, and even corporate falls as some companies, particularly technology-focused ones, thrive while others' prospects decline. Moody's Analytics recently estimated that the top 10 percent of households are responsible for nearly half of all spending.
How it is pronounced
/how to kiss/
Peter Atwater, an economics lecturer at the College of William & Mary, is credited with popularizing the term. He saw an account on “I hoped it would be short-lived,” he added.
Instead, the term and its underlying conditions remained. In the years since the pandemic, financial markets have reached record highs and the richest Americans have been on an “escalator” to the top, Mr. Atwater said. However, lower income families are struggling. Data from the Federal Reserve Bank of Atlanta show that wages are rising slowest for the lowest-paid workers; the unemployment rate rose to 4.6 percent, the highest level in four years; and tariffs, inflation and the labor market risks of artificial intelligence have only added to economic stress. In Bank of America's 2025 Holiday Survey, 62 percent said they feel financial strain and 87 percent of respondents said they plan to shop at discount stores.
On earnings calls, some executives talk about people seeking value and trading down while companies that offer luxury products see a rise in sales. Delta Air Lines, for example, said in October that premium tickets were selling faster than bus sales.
Federal Reserve Chairman Jerome H. Powell has recognized this gap. “If you listen to the earnings releases or the reports of large, publicly traded, consumer-focused companies,” he said at a news conference last month, “many, many of them say that there is a bifurcated economy and that consumers at the bottom are struggling and are buying less and switching to cheaper products,” even though wealthier people are still spending money.
Americans currently live in two different worlds, said Mr. Atwater, who popularized the K-shape. “Those below cannot help but notice the abundance above them.”