Last month, the U.S. Bureau of Labor Statistics released its September Consumer Price Index (CPI) report, which measures the average prices paid for different consumer goods and services. Through this index and other federal financial reports, it seems clear that we are experiencing a K-shaped economy.
K-shaped economies occur following a recession, where different parts of the economy recover at different rates, times, or magnitudes. Here, some sectors or demographics of the economy may experience strong growth, while others decline. The term gained prominence during the COVID-19 pandemic and was used to describe the uneven recovery across different sectors, industries, and groups of people in the economy. Unlike other types of recoveries, K-shaped economies leave gaps between industries, tax brackets, and/or generations. Such recovery is possible, in part, due to the creative destruction of old industries and technologies during the recession. Government-imposed monetary and fiscal policies used to combat the recession may also lead to a K-shaped economy, due to certain industries benefiting more than others.
The September 2025 K-shaped economy shows that consumers are increasingly diverging in their spending, with wealthier Americans engaging their purchasing power, while lower-income Americans are starting to pull back. Lower and middle-income consumers have been most affected by rising costs on essentials like groceries and gas. On the other hand, wealthier individuals have benefited from the stock market and rising home values.
Multiple corporations have spoken out about this dynamic.
McDonald’s CEO Chris Kempczinski says that the company is seeing upper-income consumers perform well, but traffic for lower-income consumers is down double digits. “It’s because people are either choosing to skip a meal… or they’re choosing to just eat at home,” he said.
Chief Financial Officer of Chipotle, Adam Rymer, told Reuters that “there are certain cohorts of the consumer, definitely on the lower-income side, that are feeling pressure right now. That’s something that we’ll have to take into consideration when looking at price going forward.”
Cox Automotive executive analyst Erin Keating said that “today’s auto market is being driven by wealthier households who have access to capital, good loan rates, and are propping up the higher end of the market.”
The data, however, points to inflation slowing down and the Federal Reserve poised to cut interest rates on October 29th. This comes at a time when the top 10% of U.S. households account for nearly half of all consumer spending, and hourly pay is rising fastest for the highest earners, according to the Federal Reserve Bank of Atlanta. Meanwhile, grocery prices recently showed their fastest monthly increase in almost three years, the job market is cooling, and an increasing number of subprime borrowers are falling behind on car loans. There have been significant annual increases in the cost of food, meat, housing, and utilities. For instance, electricity has risen by 5.1%, utility gas services by 11.7%, beef and veal by 14.7%, and coffee by 18.9%.
If spending by the highest earners slows, or stock market confidence stalls, the momentum of the economy could fade quickly. “As long as they keep spending, the economy should avoid recession, but if they turn more cautious, for whatever reason, the economy has a big problem,” wrote Moody’s Analytics chief economist Mark Zandi. Amid fears of another recession and uncertainty surrounding tariffs, such caution is much more likely than would be preferred.
There are multiple ways the government could attempt to remedy the current K-shaped economy. For one, it could implement selective tax breaks or other incentives that target certain lagging industries, forcing a faster recovery. It could also spend on infrastructure or other projects that benefit those industries. On the industry level, institutions may need to adopt more personalized support based on income or debt, flexible repayment plans, and proactive financial education programs.
However, due to the government shutdown, the White House recently announced that there will likely not be a release of data next month. Under the current conditions, there is insufficient time to collect the data needed for the October CPI report, which was originally scheduled to be published on November 13th. For this reason, the Bureau of Labor Statistics will be forced to make educated guesses on pricing, which will lead to questionable data until the two-to-three months needed to catch up following the shutdown.
As the economy continues to move along a K-shaped curve, it is important that everyday consumers understand the dangers of such an alarming trend: there will be an increased risk of a major downturn if the market continues to rely heavily on the top 10% of earners’ spending habits. Moreover, such an economy contributes to the ever-growing wealth gap seen in America today, benefiting the top percent of earners and harming the majority of Americans. While the stock market may be looking up, the reality is that this uneven recovery from the COVID-19 recession puts the most vulnerable earners in the position of most harm.