Arguments about whether the U.S. economy is shaped like a K, C or some new letter sound cosmetic, but they point to a real measurement problem. Aggregate spending can rise while the gains are concentrated. Lower-income wages can accelerate while the wealth gap remains wide. A monthly improvement in one group does not erase the balance-sheet effects accumulated over several years.
The useful question is therefore not whether the K is alive or dead. It is which part of the household economy is converging, which remains divided and which measure matters for the company or asset being analysed. The latest evidence supports both sides of the debate because wages, spending, inflation and wealth move on different clocks.
The alphabet hides the denominator
The Bureau of Economic Analysis reported that personal consumption expenditure rose 0.3% in June, while real spending rose 0.4%. Personal income and disposable income each increased 0.2%, and the saving rate was 2.7%. Those figures describe the household sector in aggregate. They do not say which households generated the additional spending or which had enough income left to save.
That is why two apparently conflicting statements can both be correct: the consumer is still spending, and many consumers remain constrained. An aggregate dollar is indifferent to whether it came from a high-income household buying a service or a lower-income household paying more for an essential. The distribution matters for persistence because households have different cash buffers, debt burdens and exposure to asset prices.
The discovery article captures the resulting alphabet dispute. Yet choosing a better letter does not solve the denominator problem. A national growth rate, a median household outcome and the difference between income groups answer different questions.
Retail spending still carries the old fork
New York Fed researchers used a panel of 200,000 respondents to examine retail spending excluding automobiles. Their Economic Heterogeneity Indicators analysis found that real retail spending growth since 2023 was driven by households earning more than $125,000. Low-income households returned to their January 2023 real-spending level only around mid-2024, while middle-income spending stalled for much of 2023.
The result is important but bounded. The panel covers retail goods better than services such as travel, entertainment, education and insurance, which higher-income households consume disproportionately. Income groups are fixed dollar bands rather than permanent identities; wage growth can move households between them. The researchers benchmarked the panel to Census retail data, but no dataset turns distribution into a single uncontested line.
Their companion analysis found that the divergence was not just a wage story. Since 2023, wealth increased most for high-income households, while low-income households faced higher inflation than the national average. Wage patterns were more mixed. The mechanism is intuitive: asset gains enlarge the spending capacity of owners, while a larger share of essentials exposes lower-income budgets to a different effective inflation rate.
Wages can converge before balance sheets do
More recent private data show that one branch may be narrowing. Bank of America's July Consumer Checkpoint, based on its card and deposit data, reported that total credit- and debit-card spending rose 6.3% from a year earlier in June. It also found lower-income after-tax wage growth moved above middle-income growth.
That improvement is material. Stronger labour income can support rent, debt service and consumption without requiring households to sell assets or borrow more. If it persists after temporary events and calendar effects, it would broaden the foundation of consumer demand.
It does not immediately equalise resilience. Wealth is a stock built over time, whereas wages are a flow measured over a period. A household whose pay growth improves this month may still have less housing equity, fewer financial assets and a thinner emergency reserve than a higher-income household. The Federal Reserve's Distributional Financial Accounts exist precisely because aggregate net worth can conceal those differences.
The same distinction applies to inflation. Slower current inflation does not reverse the cumulative increase in rent, food, insurance or transport costs. It only changes how quickly the price level is rising. A narrowing wage-growth gap can therefore coexist with a large gap in purchasing-power recovery.
The investable economy needs four measures
For companies and markets, the practical framework has four rows. First is real income growth by group, which indicates recurring purchasing power. Second is spending by category and income, which shows who is sustaining revenue. Third is the balance sheet — cash, debt and asset ownership — which determines shock absorption. Fourth is group-specific inflation, which reveals how much nominal wage growth reaches discretionary budgets.
Different businesses load on different rows. Luxury and travel demand may remain firm when asset-owning households feel wealthier. Mass-market retailers and consumer lenders depend more on broad wage growth, essential-cost pressure and credit performance. An aggregate consumption increase cannot substitute for that exposure map.
The strongest counterargument is that the K label may now lag reality. If lower-income real wages and spending outperform for several quarters, delinquencies stabilise and saving buffers rebuild, the distribution of near-term demand could become meaningfully broader even if wealth remains unequal. That evidence would weaken the thesis.
For now, the data support a narrower conclusion. The spending and wealth divide built since 2023 has not vanished, but June wage and card data show convergence is possible. The economy does not need a new letter. It needs analysts to stop asking one measure to describe four different household accounts.