Does the U.S. have a ‘K-shaped economy’? What it means for you.

Picture the letter K.

On the right side, you can see the upper diagonal heading up, while the one on the bottom falls to the ground. Now substitute upper-income Americans for the topmost diagonal, heading up and away, and lower-income folks for the one on the bottom and you can understand why comparing our economy to the shape of a “K” resonates for many people.

Beyond helping explain why many Americans feel they’re falling behind, the K-shape phenomenon is a reminder that economic policies have real-life impacts, said Diane Swonk, chief economist for KPMG US, and a warning that the divergence between fortunes for more affluent people and the rest of the country isn’t healthy.

The ‘Gini coefficient’ is a technical analysis of the gap between the rich and the poor.

“Inequality as measured by the ‘Gini coefficient’ is at its second-highest level on record,” Swonk said. “It is at a level that’s more corrosive than conducive to growth.”

But even more concerning, real-life examples of the growing divide between the wealthy and lower-income Americans are everywhere.

“Customers are feeling pretty stressed about the economy,” said Ron Sargent, CEO of the grocery company Kroger on a September earnings call. “Low- and middle- income households are really looking for deals. They’re using coupons more. They’re making smaller but more frequent trips. And they’re buying more private label products. They’re also eating out less. When you look at the higher income households, while they’re also concerned about the economy and food prices, they’re still spending.”

On Oct. 29, Chipotle CEO Scott Boatwright told stock analysts that consumers across all income levels slashed their spending earlier in the year when consumer sentiment declined. “Since then, the gap has widened, with low to middle-income guests further reducing frequency,” he said.

While it may seem fairly straightforward that people with more disposable income will go out and spend more, that’s not traditionally how the U.S. economy has worked. In fact, wealthier Americans have traditionally been more likely to save money rather than spend it, Swonk noted, whereas lower-income consumers are more inclined to spend a greater percentage of their paycheck, or unexpected bumps like a stimulus check or tax refund.

A recent analysis from Cresset Capital Chief Investment Strategist Jack Ablin underscored this phenomenon: “Lower-income families allocate a higher share of their incomes to spending on essential goods, like housing (32.9% of expenditures), transportation (17%), and food (12.9%), making these families more vulnerable to price increases in necessities,” he wrote.

Roughly 87% of households earning over $100,000 own stocks, versus just 28% of households earning less than $50,000, Ablin added.

That’s concerning for many analysts.

“The U.S. economy remains resilient but rests on three narrow pillars of growth: affluent consumers, an AI-driven investment surge, and asset price appreciation,” wrote EY-Parthenon Chief Economist Gregory Daco in a recent research note. “These interconnected supports are both a blessing and a vulnerability — capable of fueling either a virtuous or a vicious cycle. As tariffs and tighter immigration policies continue to weigh on employment and demand, and inflation reaccelerates, we expect momentum to fade heading into 2026.

Swonk also expects inflation to reaccelerate as companies increasingly start to pass on more tariff costs to consumers and immigration crackdowns make often underpaid, and thus cheaper labor much more scarce.

“Inflation is why you can add up the economy and have it look good on paper but not have it feel good to many people,” she said. “You get that when people lose ground on their spending. It’s yet another factor that worsens inequality.”

That means whatever is on the horizon for the U.S. economy may make the November vote, where affordability concerns decided many elections, look like a preview of what’s to come.

“Social history suggests extreme inequality leads to populist political backlash and policy uncertainty that disrupts markets,” Ablin wrote.

This article originally appeared on USA TODAY: What’s a ‘K-shaped economy’ and are we in one?