Treasury Secretary Scott Bessent stated during a CNBC interview earlier this week that the "K-shaped" economy has ended, arguing that lower-income earners are beginning to recover financially. The term K-shaped describes a period where higher-income and lower-income Americans experienced diverging economic fortunes in wealth accumulation and spending. Bessent characterized the current trend as a "C-economy," where lower-end wage earners are regaining ground.
To support this position, Bessent cited Bureau of Labor Statistics (BLS) data showing that weekly earnings for full-time workers in the 25th percentile rose 5.5 percent over the last year. In contrast, earnings for those in the 75th percentile grew by 1.5 percent. However, these figures do not account for inflation, which rose 3.9 percent during the same second-quarter period, affecting the real value of those wage gains.
Economic analysts offered varying perspectives on the current state of the economy. Mark Zandi, chief economist at Moody’s Analytics, stated in June that the K-shaped economy remained "firmly intact," with the top 20 percent of earners—those making over $175,000 annually—driving economic activity. Mark Matthews of the National Retail Federation noted that while the K-shape persists, discretionary spending has increased among most of the bottom 80 percent of earners.
The scale of this economic shift is reflected in the divergence between spending categories. While lower-income households have reportedly cut back on gas consumption due to higher prices, National Retail Federation data indicates that six of the bottom eight spending deciles are now prioritizing discretionary "wants" over staples. This suggests a change in how roughly 80 percent of the population manages their monthly bills and household budgets, though the sustainability of this spending remains under debate by economists citing "sticky" inflation.
The outcome of these economic trends will influence federal policy and consumer confidence heading into the second half of the year. While Treasury Secretary Bessent points to current BLS data as evidence of a broad recovery, other analysts warn that softening wage growth and persistent inflation may alter this trajectory. The next indicators of economic health will likely be found in upcoming consumer sentiment reports and future BLS wage data, which will determine if the "C-economy" described by the Treasury Department continues or if the wealth gap remains at its current levels.