For much of the past year, economists and investors described the recovery as a “K-shaped” economy. The idea captured a widening split between high earners and everyone else. Now, fresh data suggests the divergence has evolved into what analysts are calling an E-shaped economy, where middle-income households are increasingly squeezed between affluent and lower-income consumers.
Recent analysis from Bank of America indicates that the E-shaped economy is taking hold in both spending patterns and wage growth. Higher-income households continue to see steady gains, while middle-income earners are lagging behind and lower-income consumers face deeper pressure.
A Three-Tier Split in Consumer Spending
According to Bank of America’s internal credit and debit card data, the spending gap widened sharply at the start of the year. In January, year-on-year spending growth among higher-income households reached 2.5 percent. By contrast, spending by lower-income households rose just 0.3 percent, while middle-income households posted a modest 1 percent increase.
The gap between affluent households and everyone else now stands at its widest level since mid-2022, during the peak of post-pandemic spending momentum.
The bank’s economists noted that divergence in income-based spending remains persistent. They expressed concern that a widening split between higher- and middle-income households is developing alongside the already entrenched gap between the wealthy and lower-income Americans.
The E-shaped economy concept reflects this three-tier separation. Unlike the K-shape, which suggested two diverging paths, the E-shape captures a structure where high earners continue to climb, middle-income households flatten, and lower-income consumers struggle to keep pace.
Wage Growth Tells the Same Story
Spending trends are mirrored in wage growth. After-tax income data shows higher-income households experienced 3.7 percent year-on-year wage growth in January, an improvement from 3.3 percent in December. Middle-income households saw wage growth of just under 1.6 percent, only marginally higher than the previous month.
The gap between high and middle earners is now the largest in nearly five years.
These figures suggest that while headline economic data may signal resilience, gains remain unevenly distributed. Strong labor markets and selective sector growth, particularly in technology and professional services, continue to benefit higher earners disproportionately.
Wealth Inequality: A Longer-Term Divide
The current shift toward an E-shaped economy builds on structural wealth disparities that have developed over decades.
Data tracked by the Federal Reserve illustrates the scale of long-term divergence. In the third quarter of 2010, total U.S. household wealth stood at $60.76 trillion. At that time, the top 0.1 percent held $6.53 trillion, while the bottom 50 percent collectively owned just $330 billion.
By the third quarter of 2025, wealth among the bottom 50 percent had risen significantly to $4.25 trillion, marking substantial percentage growth. Yet the top 0.1 percent’s wealth expanded to $24.89 trillion over the same period, nearly six times that of the entire bottom half of households combined.
While absolute wealth levels have increased across income groups, relative concentration at the top remains dominant. The emergence of the E-shaped economy underscores that the middle class is not insulated from this widening gap.
Financial Resilience and Changing Behavior
Despite these pressures, U.S. consumers have shown notable resilience since the pandemic. Elevated interest rates and higher living costs have not fully curtailed spending, particularly among higher-income households.
At the same time, strain is visible in pockets of the economy. The Federal Reserve Bank of New York recently reported that mortgage delinquencies remain near historically normal levels overall, but deterioration is concentrated in lower-income areas where home prices are declining.
Consumer behavior also reflects adaptation. Bank of America data shows a rising share of households across income brackets paying off full credit card balances each month compared with 2019 levels. Younger lower-income consumers, in particular, have increased their repayment discipline significantly.
Shoppers are also adjusting where they spend. The so-called trading-down effect has accelerated, with stronger spending growth at value grocery chains compared with premium retailers. Lower-income households have consistently increased spending at discount grocers at a faster pace than at higher-end stores over the past three years.
What the E-Shaped Economy Signals
The emergence of the E-shaped economy suggests that America’s economic divide is becoming more complex. It is no longer defined solely by a binary split between wealthy and struggling households. Instead, middle-income families appear increasingly caught in the middle, benefiting less from wage acceleration while facing similar cost pressures.
For policymakers and investors, the implications are significant. Consumer demand remains a cornerstone of U.S. economic growth. If middle-income households weaken further, overall spending momentum could slow, even if high earners continue to perform well.
The resilience of the top tier may sustain aggregate indicators. However, the E-shaped economy points to a structural challenge: broad-based growth requires strength across all income levels, not just at the top.
