K-Shaped Economy: Top 10% Drive 23% of Spending

The top 10% of households drive nearly 23% of US spending

The US economy looks healthy on the surface. But one number tells a different story. The top 10% of US households account for nearly 23% of consumer spending. The bottom 10% contribute just 4%. That gap, according to BofA Securities, is why overall spending looks strong even as many Americans feel financially squeezed.

This is the K-shaped economy. Higher-income households move up one arm of the K. Lower-income households slide down the other.

We think the NY Fed's data makes this split unusually concrete — and worth understanding in detail.

Who is actually driving retail spending?

Researchers at the Federal Reserve Bank of New York tracked retail spending using a panel of 200,000 respondents from the analytics firm Numerator. They split consumers into three groups:

• Low income: under $40,000 per year
• Middle income: $40,000–$125,000 per year
• High income: over $125,000 per year

In nominal terms, all three groups showed positive retail sales growth since January 2023. But in real terms — after adjusting for inflation — only the high-income group showed consistent growth. Low-income households saw real spending fall over part of the period. Their spending only recovered to its January 2023 level in mid-2024. Middle-income households stalled for most of 2023 and grew only after early 2024.

Coauthor Raji Chakrabarti put it plainly: "The recent growth in consumption has not been broad based. Rather, it has been driven by the high-income households."

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When did the split begin?

The NY Fed researchers found the divergence was sharpest in 2023. That timing matters. Much of the split took place shortly after pandemic-era subsidies for low- and middle-income households expired. The K-shaped pattern was not present before COVID or during the immediate post-COVID recovery. It emerged specifically from 2023 onward.

Key figures at a glance

Why are high-income households spending more?

BofA points to three factors. Robust stock markets, healthier household finances, and recent tax relief have all supported high-income spending. These factors let wealthier Americans keep spending even as hiring slowed and consumer confidence weakened.

This pattern extends beyond retail. Spending on premium digital services — including AI infrastructure investment and cloud tools — skews toward higher-income households. The same bifurcation visible in retail data runs through the broader consumer economy. The wealth concentration showing up in asset markets is now measurable in spending data too.

What are the risks?

BofA warns that concentrating spending among affluent households creates real vulnerability. If equity markets correct or a geopolitical shock hits, high-income spending could fall fast. That would drag down overall consumption and employment quickly.

BofA also expects the Federal Reserve to maintain a cautious approach to interest rates. The firm is weighing overall demand against ongoing labor market weakness. Fiscal constraints, the report adds, could limit how much policy can do to close the gap.

The report concludes the US economy's foundation is stable — but its longevity depends on expanding the recovery to include lower-income consumers.

What does TransUnion's research add?

A separate report from credit bureau TransUnion found a matching split in credit conditions. Credit has improved for a large segment of consumers. But others face higher costs and rising debt burdens at the same time.

Michele Raneri, TransUnion's vice president and head of US research and consulting, said the K-shaped economy is "alive and well."

How did the NY Fed build its data?

The NY Fed team — Rajashri Chakrabarti, Thu Pham, Beck Pierce, and Maxim L. Pinkovskiy — benchmarked the Numerator data against the Census Bureau's Advance Monthly Retail Trade Survey (MARTS). The two datasets tracked closely. That gave the researchers confidence that Numerator reliably captures spending behavior across income groups.

To adjust for inflation, they built income-specific retail price deflators. These account for the fact that different income groups spend differently across categories like food, apparel, gas, and household furnishings — and those categories face different rates of price change.

The NY Fed published its research on May 1, 2026. BofA's report followed on June 30, 2026. Both point to the same structural divide. Tech sector observers tracking tech sector growth should note that the addressable market for premium products is increasingly concentrated at the top of the income distribution.

Sources: NY Fed Liberty Street Economics · CNBC · DevDiscourse / BofA Securities · Federal Reserve