To many experts, the U.S. economy is looking increasingly “K-shaped,” with bifurcation between growth and wealth in the upper echelons as lower-income households continue on a downward path that could spell trouble for the country’s overall stability.
“This is not a new thing. Financial markets like to invent these labels,” said Şebnem Kalemli-Özcan, Schreiber Family Professor of Economics at Brown University, who told Newsweek that the term was entering the vernacular given the now “obvious” divide between America’s economic ranks.
“We see strong investment and consumption growth driven by the stock market, driven by AI investment and all that,” she said. “But at the same time, we see labor market weakening. We see poor households living month to month on their pay cheques.”
While the economy has always been defined by the divergent successes of its different tiers, Ohio State economics professor Lucia Dunn told Fortune that the growing divide could transform into a crisis.
“We are losing the middle class,” she said. “And when you get to a society where there are a lot of people at the bottom and then a small group at the top, that’s a prescription for real trouble.”
Among the signs of this increasing bifurcation, a recent study from the consumer credit reporting agency TransUnion found that the number of Americans taking on loans with weaker financial profiles had risen to 14.4 percent from 13.9 over the past year, even as the share of super prime borrowers inched up from 40.3 percent to 40.9 percent.
“This shift suggests that while many consumers are navigating the current economic climate well, others may be facing financial strain,” Jason Laky, TransUnion’s head of financial services, wrote in the report.
Signs of this financial strain are showing up in every corner, from accelerating inflation and record-high household debt, to the current hiring slowdown and surveys showing broad-based pessimism about the country’s economic outlook. A widening wage gap adds to this picture, and Apollo chief economist Torsten Sløk cites data from the Atlanta Federal Reserve showing that wage growth has declined at a far faster rate for those in the lowest-income quarter than in the higher-income categories.
“Before and during the pandemic, lower-income households experienced higher wage growth than other income groups,” he wrote. “But that has changed over the past year. Today, wage growth for low-income workers is significantly lower than wage growth for middle- and high-income workers.”
And shoppers outside the higher income groups appear to be tightening their belts amid financial strains and fears of a labor market slowdown. An August survey from McKinsey found poorer shoppers were far more likely to cut back particularly on discretionary purchases. McDonald’s CEO Chris Kempczinski spoke of a “bifurcated consumer base” during the company’s most recent earnings call, with higher-income traffic rising but visits from lower-income diners dropping “nearly double digits” over the past year.
Consumer spending—estimated to account for around two-thirds of America’s GDP—has remained robust in 2025, but experts say the affluent have kept it afloat and from transforming into a more serious economic issue.
“Almost 50 percent of consumption is now driven by those in the top 10 percent of the income distribution—those making $250,000 or more annually,” said Steve Hanke, a professor of Applied Economics at the Johns Hopkins University who served on former President Ronald Reagan’s Council of Economic Advisers. “The folks with lower-than-average incomes, those who were hurt by the Fed’s post-COVID inflationary policies, are small potatoes when it comes to consumption.”
Chief International Economist at ING James Knightley similarly told Newsweek that the top 20 percent remain “in great shape” and are “keeping the show on the road” in terms of consumption.
“Inflation is an irritation rather than a constraint on spending, incomes are high, and there is a sense of job security, while they hold significant housing and equity wealth that has risen strongly,” he said.
“If you own stocks, a house, gold, silver and bitcoin, you are currently well ahead of those who may not have the means to own these assets and are confronted by the elevated costs of food, shelter and insurance,” added Steven Hochberg, chief market analyst at Elliott Wave International.
“The stock market is going ballistic and not from the poor buying stock,” Peter Simon, professor of economics at Salem State University, told Newsweek. “Businesses are taking their extraordinary profits and buying back stock—making them even more profitable. Firms are laying off workers who can be replaced by AI, and in their anticipation of AI replacing even more.”
And while the wealthiest Americans continue to benefit from stock market gains and asset appreciation, Simon said failing to address these structural imbalances could slow overall growth and heighten the risk of an economic downturn.
“Workers are worried about AI and their future job prospects, so they are not spending any more money than necessary, which can lead to recession,” he said.
“First and foremost, of course, the risk is recession,” according to Kalemli-Özcan, who said this could come about from struggling small- and medium-sized businesses beginning to lay off their workers en masse, or a stock market correction triggering a collapse of the increasingly top-heavy economy.