Miserable K-shaped economy might actually be fading, as lower-income families bounce back, says Bank of America

Green shoots are appearing in the spending patterns of lower-income earners, with their consumption tracking up in recent days on goods and services excluding gas. The trend could signal the beginning of the end of the so-called a ‘K-shaped’ economy in which the spending and fortunes of upper-income earners rise, while those of lower earners fall. Bank of America says card data over the past week is showing rays of optimism that the lopsided K-shaped economy is on its way out: the gap in spending between upper and lower income earners has closed significantly. Wealthier households’ consumption is holding at the same level established in March this year, while poorer consumers are beginning to spend more. The second-largest bank in the U.S. said the K-shaped economy has been persistent in its data since late 2024 and early 2025, but recent headlines may have helped alleviate fears about the trajectory of the economy. First, the U.S. and Iran have agreed to a deal to cease military conflict in the Middle East, despite the two sides abruptly calling off talks this morning. The conflict has triggered price hikes on gas, airfares, and groceries (given disruptions to food supply chains). A resolution of the upheaval could cause these elevated costs to return to more normal levels. Oil prices already reflect the draw-down effect. At the height of the geopolitical tension, crude oil hit a little over $113 a barrel; at the time of writing, it sits at $79, having dropped steeply in the past week. Bank of America’s Shruti Mishra has another theory for the optimism: “A recent Bank of America Institute report showed a rise in after-tax wage growth for lower- and middle-income households. It is still too early to confirm a sustained shift, as the recent improvement could partly reflect tax relief, but the data bear watching.” The jobs outlook Improved job prospects would meaningfully boost the outlook for consumers, and here things seem to be l