(What’s Left of) Our Economy: Those K-Shaped U.S. Economy Claims are Looking Weaker than Ever

For several months RealityChek has been pushing back against widespread claims that the U.S. economy has become decidedly and worrisomely “K-shaped” during the second Trump administration.  My overall view:  The kind of rich-poor spending and income gaps emphasized by these claims were nothing terribly new, and haven’t gotten significantly different lately.  (See, e.g., here and here).

So it’s been gratifying lately to see a mini-burst of evidence showing that whatever unusual K-shaped features the economy had been showing are rapidly fading.

First came a July 23 Wall Street Journal article reporting data revealing that “Working-class Americans have experienced a paycheck bump in recent months after tax breaks and some signs of faster earnings growth….” 

Specifically, on an annual basis, during the second quarter of this year “Weekly pay rose 5.5% for workers at the 25th percentile of earnings and 4.6% for workers at the median, according to Labor Department data. That outpaced growth of 1.5% or less for higher-earning brackets. And it outpaced inflation, too: Consumer prices rose 3.9% over the same period.”

The Journal added that 

“Data from the Bank of America Institute, meanwhile, show that the after-tax wage growth for lower-income households accelerated in June to the fastest pace since July 2023. The Bank of America data show wages for the bottom third of earners grew by 4.1% in June from a year earlier, surpassing wage growth of middle-income households for the first time since late 2024 and nearly matching the wage growth of the highest-income households.”

That Bank of America report was titled Consumer Checkpoint:  The great convergence, and this graph reproduced by the Journal from the study makes clear how dramatically the wage gap narrowing has been.  Indeed, for the time being, it’s gone:

Even better, the Bank of America presented results showing that the economy was becoming much less K-shaped in terms of consumer spending as well, as the two graphs below make clear:

And there’s more!  As reported by Axios.com this week, PNC Bank said this past Monday “that the gap between spending growth among its richest and poorest account holders shrank to just 0.1 percentage point in July, from a peak of 5 percentage points last year.” 

Moreover, “’From our perspective, through all the various dimensions, there’s not like that much there in terms of support for the K-shape narrative,” JPMorgan Chase chief financial officer Jeremy Barnum told investors last month.’”  (See this link for these last two findings.) 

Trump critics have consistently used K-shaped claims to attack the president’s boasts that the economy has improved so far during his second watch. (See, e.g., here, here, and here.)  

But the findings above indicate that, as with contentions that the economy is dangerously bolstered by an artificial intelligence spending bubble (e.g., here) and that business investment has been paralyzed by tariffs (see, e.g., here), the critics are running awfully low on ammo.