The familiar K-shaped recovery, a concept that has dominated economic discourse for the past year, appears to be evolving into a more complex, multi-tiered structure. For months, the K-shape illustrated a stark divergence: the affluent prospering while those at the lower end of the income spectrum faced increasing hardship. However, recent analysis from Bank of America now suggests a significant shift, indicating that middle-class consumers are beginning to separate from the trajectory of lower-income households. While not experiencing the robust growth seen by the wealthy, their spending power is not as severely diminished as that of the less affluent. This suggests an economic landscape that might be better characterized by an “E” shape, according to economists at Bank of America.
This emerging pattern highlights a deepening income-based divergence in both spending habits and wage growth. Data from Bank of America reveals a widening gap between higher-income households and all others in terms of spending, reaching its largest point in January since mid-2022, a period marked by a post-pandemic spending boom. Specifically, higher-income consumers saw their spending on credit and debit cards increase by 2.5% year-on-year in January. In contrast, lower-income households experienced a modest 0.3% growth, with middle-income spending remaining relatively flat at 1%. This disparity is also reflected in after-tax wage growth, where the gap between higher and middle-income households is now the widest it has been in nearly five years. January figures show higher-income households enjoying a 3.7% year-on-year wage growth, a notable improvement from December’s 3.3%. Middle-income families, however, saw only a marginal increase, moving from just over 1.5% in December to just under 1.6% in January.
The concept of a growing economic divide is not entirely new; echoes of this trend can be traced back decades. The Federal Reserve’s monitoring of household wealth distribution, which began in the third quarter of 2010, offers a long-term perspective. At that time, total household wealth stood at $60.76 trillion. The top 0.1% of the population commanded $6.53 trillion, while those in the 99th to 99.9th percentiles held $10.75 trillion. The bottom 50% collectively owned a mere $330 billion. Fast forward to the third quarter of 2025, and while the wealth of the bottom 50% has seen a remarkable 1,189% increase to $4.25 trillion, it still pales in comparison to the top 0.1%. This elite group experienced a 281% growth, amassing $24.89 trillion, nearly six times the combined wealth of the entire bottom half of the population.
Despite these widening disparities, the resilience of the U.S. consumer has often surprised observers on Wall Street, especially in the face of elevated interest rates and rising costs of living. However, this resilience isn’t uniformly distributed. Debt indicators suggest that those at the lower end of the economic spectrum are facing increasing pressure. The New York Fed recently reported that while mortgage delinquency rates remain near historical norms, deterioration is concentrated in lower-income areas experiencing declining home prices. While transitions into early delinquency were noted for mortgages and student loans, other debt types largely remained stable.
Bank of America’s internal data corroborates this nuanced picture. The proportion of households paying off their full credit card balance each month has increased across all income brackets and generations compared to 2019. For instance, lower-income young people saw a nearly 20-point increase in this metric as of January 2026, relative to a 2019 baseline. A similar, though less pronounced, trend is evident among Gen X and older generations. Consumers’ bank balances have benefited from factors like wage growth and lower gas prices, which have somewhat cushioned the impact of inflation. Yet, shoppers are also demonstrating increased savviness, engaging in a “trading-down” phenomenon. Spending growth at value grocers significantly outpaced that at premium grocery stores from 2022 until early 2025. While middle and higher-income households’ spending growth at these different tiers has somewhat converged over the last year, lower-income households’ growth at value grocers has consistently outpaced that at premium stores by approximately five percentage points for the past three years, illustrating a persistent shift in consumer behavior driven by economic realities.
