Tracking the K‑Shaped Economy: Who’s Driving Spending?

Rajashri Chakrabarti, Thu Pham, Beck Pierce, and Maxim L. Pinkovskiy

Editors’ Note: The title of the second chart in this post has been corrected. May 1, 10:40 am.  

Aggregate real consumer spending has risen solidly since 2023. However, it is less clear how widely shared this improvement has been across all segments of society. This is important because systematic heterogeneity may mask the dependence of aggregate growth on a relatively small group of households and thus conceal macroeconomic risks. In this post, we use consumer spending data recently added to the Economic Heterogeneity Indicators (EHIs) and find that retail spending growth has been driven by high-income households—those earning more than $125,000 per year. In the popular press, the phenomenon of higher-income households growing at a faster rate than lower-income households has been referred to as the K-shaped economy. We find that consumption has exhibited a K-shaped economy since 2023, although not in the pre-COVID period or during the post-COVID recovery.

Our Data

To look at consumer spending by income, we use a panel of 200,000 respondents from the analytics firm Numerator. For the remainder of this discussion, we analyze retail sales excluding automobiles (ex auto), which is typical in this literature because of the high volatility of auto sales. We start by benchmarking the Numerator data against the widely used Advance Monthly Retail Trade Survey (MARTS ) from the Census Bureau. As the chart below shows, the cumulative growth of overall retail spending from Numerator (in red) relative to January 2023 has tracked MARTS (in blue) closely. We are therefore reasonably confident that the Numerator data provide reliable information about retail spending for individual groups, such as by income.

In the next chart, we use Numerator data to investigate spending growth across income groups. Each line displays cumulative growth in average retail spending ex auto relative to January 2023 for households with nominal annual household income falling into the three groups: 1) low income (less than $40,000), 2) middle income ($40,000-$125,000), and 3) high income (more than $125,000). As seen in the left panel of the chart, although nominal retail sales growth was positive for all three groups, it was most elevated for the high-income group, followed by the middle-income group and then the low-income group.

In the right panel, we compute retail sales growth in real terms for all three income groups. To do so, we compute income-specific retail price deflators —that is price indices that reflect the different spending patterns of each income group for retail goods. For this purpose, we combine information from the CPI on city-level price changes of components of retail (such as food, apparel, gas, household furnishings, educational commodities) with data from the Consumer Expenditure Survey (CEX) on the city-level consumption share of these goods categories by different income groups. Specifically, to compute income-specific retail price deflators, we calculate city-level weighted averages of inflation for the various goods within retail where the weights are the income specific expenditure shares of those goods. The intuition here is that if a certain income group has a higher share of a certain component of retail that also faces higher inflationary pressure, then that income group will also face higher inflationary pressure. Using these income-specific retail price deflators, we are able to deflate nominal retail sales growth for all three income groups to obtain real retail sales growth.

We see that growth over this period has been K-shaped, with much of the divergence taking place in 2023, shortly after many of the pandemic-era subsidies for low- and middle-income households expired. Only the high-income group consistently displayed real spending growth over this period. By contrast, real spending declined over part of the period for low-income households, and regained its January 2023 level only in mid-2024, while the real spending of middle-income households stalled for most of 2023 and grew only after early 2023.

Spending by Income Groups

Sources: Numerator Consumer Spending Data, Consumer Price Index via Haver Analytics, and authors’ calculations.
Notes: Real spending uses corresponding demographic retail prices.

Next, we examine in more detail the spending of high-income consumers. The chart below shows nominal and real retail spending cumulative growth for subdivisions of the $125,000+ income bracket. We see that for each of these brackets, retail sales relative to the January 2023 level are higher than for the bracket below it. The exception is the highest income bracket of households earning $250,000+, who, based on the CEX, spend a disproportionately large share of consumption (relative to the next highest bracket) on services that are aren’t comprehensively covered by Numerator, such as high-end restaurants, entertainment fees and admissions, education and insurance.

High-Income Households Have Experienced Faster Nominal and Real Spending Growth

Sources: Numerator Consumer Spending Data, Consumer Price Index via Haver Analytics, and authors’ calculations.
Notes: Real spending uses corresponding demographic retail prices.

It is notable that other recent periods did not experience similar K‑shaped spending growth patterns. For example, most of the period between 2018 and early 2022 saw higher spending growth by lower-income groups. In the post-COVID period, earnings of lower-income groups rose rapidly, aided by pandemic relief and a strong labor market at the bottom of the wage distribution, helping to fuel greater consumption growth (see the chart below).

No K-Shaped Spending Dynamics During Pre-COVID or COVID Period

Sources: Numerator Consumer Spending Data, Consumer Price Index via Haver Analytics, and authors’ calculations.
Notes: Real spending uses corresponding demographic retail prices.

In recent years, people with higher incomes have increased their spending more than those with lower incomes and the recent growth in retail spending has been mostly due to the high-income households. This pattern extends to incomes within the top of the income distribution as well. This phenomenon is also specific to recent years, not occurring during the pandemic or immediate pre-pandemic period. Reliance on a single segment of the economy has important implications for spending growth and its fragility, as well as for economic vulnerability and policy. Our companion post discusses the mechanisms underlying this trend with the goal of better understanding what has been driving this heterogeneity in retail spending.

Rajashri Chakrabarti is an economic research advisor in the Federal Reserve Bank of New York’s Research and Statistics Group.  

Thu Pham is a research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

Beck Pierce is a research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

Maxim L. Pinkovskiy is an economic research advisor in the Federal Reserve Bank of New York’s Research and Statistics Group.

 
@article{ChakrabartiPhamPiercePinkovskiy2026,
    author={Chakrabarti, Rajashri and Pham, Thu and Pierce, Beck and Pinkovskiy, Maxim L.},
    title={Tracking the K‑Shaped Economy: Who’s Driving Spending?},
    journal={Liberty Street Economics},
    note={Liberty Street Economics Blog},
    number={May 1},
    year={2026},
    url={https://doi.org/10.59576/lse.20260501a}
}

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