Here’s why everyone’s talking about a ‘K-shaped’ economy

By CHRISTOPHER RUGABER AP Economics Writer WASHINGTON AP From corporate executives to Wall Street analysts to Federal Reserve officers references to the K-shaped business sector are rapidly proliferating So what does it mean Purely put the upper part of the K refers to higher-income Americans seeing their incomes and wealth rise while the bottom part points to lower-income households struggling with weaker income gains and steep prices A big reason the term is popping up so often is that it helps explain an unusually muddy and convoluted period for the U S market Upsurge appears solid yet hiring is sluggish and the unemployment rate has ticked up Overall consumer spending is still rising but Americans are less confident AI-related statistics center construction is soaring while factories are laying off workers and home sales are weak And the stock realm still hovers near record highs even as wage enhancement is slowing It also captures ongoing concerns around affordability which is much more of a concern for middle and lower-income households Persistent inflation has received renewed political attention after voter anger over costly rents groceries and imported goods helped Democrats win several high-profile elections last month Those at the bottom are living with the cumulative impacts of price inflation mentioned Peter Atwater an economics professor at William Mary in Virginia At the same time those at the top are benefiting from the cumulative impact of asset inflation Here are specific things to know about the K-shaped commercial sector Not an L U or V Atwater literally popularized the label K-shaped economic system during the pandemic after seeing it crop up on social media Other economists were discussing different letters to describe how the COVID recession in could play out Would it be a V-shaped recovery meaning a sharp decline and then rapid bounce-back Or would it be U-shaped meaning a more gradual rebound Or worse L-shaped A recession followed by extended stagnation There was sort of this land-grab for letters Atwater announced To me the letter that made the most of sense was K Back then it captured the differing fortunes between white-collar professionals still employed and working at home while stock prices rose even as massive layoffs at factories restaurants and entertainment venues pushed unemployment to nearly Inequality persists Inequality was somewhat reversed in the aftermath of the pandemic when businesses offered large raises for blue collar workers as the business sector reopened and demand surged Numerous companies restaurants hotels entertainment venues were caught short-staffed and sought to rapidly increase hiring Lower-income workers saw larger pay gains than higher-paid ones In and inflation-adjusted wages for the bottom quarter of workers rose at a yearly rate of outpacing the gains for the top quarter according to research by the Federal Reserve Bank of Minneapolis We had that kind of two-year period where the bottom was catching up and that talk of the K-shape went away Dario Perkins an economist at TSLombard revealed And since then the financial market s cooled down again he added bringing back K-shape references This year however inflation-adjusted wage increase has weakened as hiring has fallen with the drop more pronounced for lower-income Americans Their wage advance has plunged to an annual rate of just the Minneapolis Fed unveiled below that of the highest earning quarter of workers at Slower income increase has left a multitude of lower-income workers less able to spend Based on facts from its credit card and debit card customers Bank of America located that spending among higher-income households rose in October compared with a year ago while lower-income groups lagged at just And a Federal Reserve Bank of Boston inquiry in August discovered that consumer spending in latest years has been driven by richer households while lower- and middle-income Americans have piled up more credit card debt even as they ve spent less Businesses take note Corporate executives are paying attention and in selected cases explicitly adjusting their businesses to account for it They are seeking tactics to sell more high-priced items to the wealthy while also reducing package sizes and taking other attempts to target struggling consumers Henrique Braun chief operating officer at Coca-Cola for example stated in late October that the company is pursuing both affordability and premiumization It is generating more of its earnings from higher-end products such as its Smartwater and Fairlife filtered milk brands while at the same time introducing mini cans for those looking to spend less We continue to see divergency in spending between the income groups Braun reported in a conference call with analysts last month The pressure on middle and low-end income consumers is still there Sales of first- and business-class tickets have been fueling revenue and profit for Delta Air Lines its CEO Ed Bastian commented in October while lower-end consumers have been clearly struggling And Best Buy CEO Corie Barry on Tuesday mentioned that the top of all U S consumers are driving two-thirds of all consumption The remaining are focused on getting the best deals and are more dependent on a healthy job arena she declared One of the things we re watching closely is how does employment continue to evolve for particularly that cohort of people who are living more paycheck to paycheck she added Related Articles Thanksgiving debt regrets How to recover if you overspend What is GivingTuesday How to donate on the annual day of charitable giving Starbucks to pay about M to NYC workers to settle maintains it violated labor law Bitcoin tumbles below in crypto rout When formal systems stop working neighbors turn to each other in what a multitude of call mutual aid AI plays a role The massive stake in evidence centers and computing power has also contributed to the K-shaped financial market by lifting share prices for the so-called Magnificent companies competing to build out AI Infrastructure Yet so far it s not creating a great number of jobs or lifting incomes for those who don t own stocks What we see at the very top is an business sector that is sort of self-contained between AI the stock territory the experiences of the wealthy Atwater stated And it s largely contained It doesn t flow through to the bottom Driven by big gains for companies like Google Amazon Nvidia and Microsoft the stock sector has risen nearly this year But the wealthiest of Americans own roughly of the stock field according to Federal Reserve details The poorest own just K-shape comes with concerns Multiple economists worry that an economic system propelled mostly by the wealthiest isn t sustainable Perkins notes that should layoffs worsen and unemployment rise middle- and lower-income Americans could pull back sharply on spending Revenue for companies like Apple and Amazon would fall Advertising revenue which is fueling companies such as Google and Facebook parent Meta typically plunges in downturns Such a cycle could even force the Mag to pull back on their AI investments and send the market into recession he revealed Then you re talking about the bottom of the K essentially pulling down the top he added Perkins however sees a different path as more likely A multitude of U S households will receive larger tax refunds early next year under the Trump administration s budget law And Trump will likely appoint a new Federal Reserve chair by next May who will be more inclined to cut interest rates Lower borrowing costs could accelerate enhancement and wages though it could also worsen inflation AP Retail Writer Anne D Innocenzio in New York contributed to this review