The End of the K-Shaped Economy? Not So Fast

Scott Bessent’s assertion that the K-shaped economy is over has been met with skepticism from economists and data analysts. While he may be “sick of hearing about” this phenomenon, Treasury data tells a different story. In fact, it suggests that the K-shaped economy remains stubbornly intact.

Bessent’s claim that U.S. households are now in a C-shaped economy is based on Treasury data showing a 2% real wage gain for the bottom 25% of workers over a specific period – the first five months of Trump’s presidency. However, this figure may not reflect the current state of affairs.

Other indicators suggest that the K-shaped economy has not disappeared. The One Big Beautiful Bill Act, touted as a major boon for lower-income households, appears to have had limited impact on their finances. While it provided significant tax cuts and increased take-home pay for certain groups, these benefits were largely offset by the Iran war’s knock-on effect on gasoline prices.

Bank of America data is similarly nuanced. Chief U.S. economist Aditya Bhave notes that consumer spending (excluding gas) has ceased to be K-shaped on a year-over-year basis. However, this trend may be due to factors such as stronger job growth and lower tax withholding rather than any fundamental shift in the economy.

Wage growth by income percentile data from the Federal Reserve Bank of Atlanta suggests that the K-shaped economy remains firmly entrenched. The lowest quartile of wage distribution has seen a 3.6% growth rate, while the top 25% of earners have enjoyed a slightly higher growth rate of 3.9%. At no point in 2026 did median wage growth for the bottom percentile of earners exceed that of the top percentile.

The concentration of wealth gains among higher earners underscores the persistence of the K-shaped economy. As noted by Joe Brusuelas, chief economist at RSM, 75 cents of every dollar generated by the equity rally flows through the top income quintile. This means that while lower-income households may be benefiting from tax cuts and other government policies, they are not driving overall spending or economic growth.

The implications of this phenomenon are significant. If we rely on the stock market to sustain consumer spending, we risk perpetuating a system where wealth is concentrated among the already affluent. As Brusuelas notes, “the wealth-effect channel is more skewed toward the top.” This could have far-reaching consequences for social mobility and economic inequality.

The data suggests that Bessent’s declaration that the K-shaped economy is over may be premature. The phenomenon remains firmly intact, with lower-income households continuing to lag behind their richer counterparts. Policymakers must look beyond simplistic solutions and focus on creating a more equitable distribution of wealth to truly address issues of income inequality and social mobility.