Business & Finance
Treasury Secretary Scott Bessent claims K-shaped economy is over, but some economists disagree
Bessent points to narrowing wage and spending gaps as evidence of a "C-shaped" convergence, while analysts highlight ongoing debt delinquencies and high housing costs.
The short version
- U.S. Treasury Secretary Scott Bessent declared that the pandemic-era "K-shaped" economic divergence has ended, transitioning instead to a "C" shape where lower-income earners are catching up.
- Data shows lower-income households experienced faster wage and card spending growth in July than other tiers, indicating some convergence.
- Economists warn that overall consumer stress remains high, pointing to rising mortgage and auto loan delinquencies, high housing costs, and ongoing student loan pressures.
Key facts
- Treasury Secretary Scott Bessent announced that the K-shaped economy is over, replaced by a "C" economy where lower-income earners are clawing back.[CNBC]
- Bank of America Institute data showed that lower-income households' after-tax wages grew at an average 5.2% annual pace in July, outpacing higher-income wage growth for the first time since December 2024.[CNBC]
- Card spending by lower-income households grew 5.4% year-over-year in July, surpassing spending growth among middle-income households.[CNBC]
- FICO's vice president of scores and predictive analytics reported minor increases in 90-plus day delinquency rates for mortgage and auto loans among consumers with the lowest credit scores.[CNBC]
- The average monthly mortgage payment for first-time homebuyers reached $2,563, representing a 57% increase since April 2019.[CNBC]
- A FICO survey found that 56% of student loan borrowers reported that repayments forced them to rely more heavily on credit cards or other loans over the past year.[CNBC]
What remains uncertain
- Economists debate whether the converging data signals a true shift away from a K-shaped economy, as alternative shapes like an 'E' or 'X' economy could emerge, or demographic divisions by age may prove more relevant.[CNBC]