Treasury Secretary Scott Bessent says the U.S. economy is moving beyond the K-shaped divide, but economists and corporate leaders continue to offer mixed views on the health of American consumers.
Bessent said in a CNBC "Squawk Box" interview last week that the "K-shaped" economy is over and that a "C-economy" is emerging, with lower-income workers beginning to regain ground.
Bessent Makes His Case
The K-shaped economy refers to a widening gap between higher- and lower-income Americans, with the two groups experiencing different trends in income, spending and wealth.
Bessent pointed to Bureau of Labor Statistics data showing weekly earnings for full-time workers at the 25th percentile rose 5.5% from a year earlier in the second quarter, compared with a 1.5% increase for workers at the 75th percentile. He said lower-wage earners are beginning to benefit from faster wage growth, including from policies such as the elimination of taxes on tips.
He said the data showed lower-income workers are "finally clawing it back, just like they did in President Trump’s first term."
The Consumer Price Index rose 3.9% over the same period, according to the Bureau of Labor Statistics.
Reich Points To McDonald’s
Economist Robert Reich pushed back against Bessent’s view in a post on X on Sunday, calling the idea that the K-shaped economy is "dead" wrong.
In a video accompanying the post, Reich pointed to McDonald’s Corp (NYSE:MCD) and its comments about consumer behavior.
According to Reich, McDonald’s said fast-food chains saw a double-digit decline in visits from lower- and middle-income customers in the first quarter of 2025 because those consumers could not afford it.
Reich said the contrast showed a "two-tier economy," with consumers earning more than $100,000 in a stronger position while middle- and lower-income consumers faced greater pressure.
He also argued that about 70% of the U.S. economy depends on consumer spending and said stagnant wages and inflation were weakening the buying power of lower-income households.
Economists See A Nuanced Picture
Moody’s Analytics chief economist Mark Zandi said in June that the K-shaped economy remained "firmly intact," arguing that the top 20% of income earners, those making more than $175,000, continued to drive the economy.
Mark Matthews, chief economist at the National Retail Federation, offered a more measured view in a recent analysis.
"The K-shape persists, but lower-income consumers have increased their spending versus last year," Matthews wrote.
He said that among six of the bottom eight spending groups, discretionary spending grew faster than spending on staples. Consumers "seem to be willing to focus more of their spending on the things they want rather than the things they need," Matthews wrote.
Matthews also warned that "softening wage growth" and "sticky inflation" could make the second half of the year less positive.
Corporate Spending Shows The Divide
Earlier corporate results also offered evidence of a split in consumer behavior.
Ralph Lauren Corp. (NYSE:RL) said its "core consumer continues to be resilient," while Walmart Inc.‘s (NASDAQ:WMT) said lower-income consumers were "more budget conscious and perhaps navigating financial distress."
Ralph Lauren had reported a 16% increase in average unit retail, pointing to continued strength among higher-income shoppers. Walmart, meanwhile, said its customers were increasingly looking for value, with average purchases at its fuel stations falling below 10 gallons for the first time since 2022.
Uber Sees A Healthy Consumer
Uber Technologies Inc. (NYSE:UBER) CEO Dara Khosrowshahi offered a more optimistic assessment in a Bloomberg interview last week.
"All signs point to a healthy consumer," Khosrowshahi said, pointing to growth across Uber’s mobility and delivery businesses.
He said the company was not seeing consumers trade down, leave smaller tips or otherwise pull back.
"We don’t see any signs whatsoever of a consumer slowdown," Khosrowshahi said. "So the consumer remains strong."
Khosrowshahi also pointed to driver earnings, saying Uber now has more than 10 million earners globally and that U.S. driver earnings were up 8% year over year.
"People talk about the K-shaped economy, but we think both sides of the K continue to be very healthy," he said.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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