November 10, 2025 • 14 mins
The US economy appears remarkably resilient right now, but if you look closer, you’ll see a different picture emerge: a growing divide between America’s wealthiest consumers and everyone else. Economists call this kind of bifurcated economy “K-shaped.” And as the top and bottom of the K have diverged, the overall economy has also become more top-heavy and more fragile.
On today’s Big Take podcast, host Sarah Holder is joined by Peter Atwater – the economist who popularized the idea of a “K-shaped economy” during the pandemic – and Bloomberg reporter Catarina Saraiva, who covers the federal reserve and labor market. They examine why this gap is widening, how it’s showing up in company earnings reports and what it means for the country’s overall financial health.
Read more: ‘Jenga Tower’ US Economy Teeters as Middle Class Pulls Back Spending
See omnystudio.com/listener for privacy information.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
If you squint at enough data about the US economy
right now, on income and spending and consumer confidence, there's
a shape that starts to emerge, a letter, the letter K.
Speaker 3 (00:22):
A K shaped economy is the result of a bifurcation
and consumer confidence.
Speaker 2 (00:30):
Economist Peter Atwater is responsible for popularizing the idea of
a K shaped economy in twenty twenty during the global
COVID pandemic.
Speaker 3 (00:39):
We should have hoped for a V shaped recovery coming
out of COVID, where all ships rose together, even a
U shaped recovery where there's a delay in the recovery
but ultimately it all rises together.
Speaker 2 (00:56):
But we didn't get a V. We didn't get a U.
We didn't even get an L where things stayed bad
for everyone. Instead we got a K.
Speaker 1 (01:06):
So, if you think about the letter K, it has
a vertical line, obviously, and then two lines kind of
diverging from the center of that vertical line.
Speaker 2 (01:15):
That's Bloomberg reporter Katerina Sariva, and the divergence she and
Peter are talking about is a split in the paths
of Americans at the top and bottom of the US
economy with the fortunes of those at the top rising
and those at the bottom getting worse. That's how the
economy looked during the recovery from COVID, and it's how
(01:36):
it looks again now.
Speaker 1 (01:38):
Today, fast forward to twenty twenty five. We're again talking
about the K shape because we are seeing kind of
a return to that. We're seeing consumer spending really slow
down for folks at the lower ends of the income spectrum,
while rich folks are doing really well.
Speaker 2 (01:55):
And this time around, the two sides of that K
are getting even farther apart. I'm Sarah Holder, and this
is the big take from Bloomberg News today on the
show A Tale of Two Economies. Why the gap between
America's wealthiest and everyone else is widening, how it's showing
(02:16):
up in company earnings reports, and what the K shape
means for the country's overall financial health. Economist Peter Atwater
studies confidence and how it impacts consumers decision making. That's
(02:37):
what originally drove him to recognize this K shaped pattern.
Speaker 3 (02:42):
Early on in COVID, I saw as white collar workers
their confidence immediately popped when they could work from home.
On the other hand, blue collar workers factory workers, hospital workers.
Their confidence kept deteriorating. So based on that divergence and confidence,
(03:03):
I expected that the economy would follow.
Speaker 2 (03:06):
And Bloomberg's Katarina Sariva says it did follow.
Speaker 1 (03:11):
You had one group of people that were kind of
in the upper echelons of the economy, so think like
high income earners, people with a lot of wealth, and
those people were really doing well. The stock market was
rising a lot already by the end of twenty twenty,
So people with wealth and people with jobs where they
could work from home, for example, we're doing really well. Now.
(03:34):
The other half of the economy really wasn't. We still
had like eleven million people unemployed at the end of
twenty twenty. Unemployment rate was above six percent, So for
anyone who didn't have stocks, for example, maybe didn't own
a home, things were not going great.
Speaker 2 (03:52):
Eventually, the government rolled out stimulus programs, lockdowns lifted, and
companies started rehiring workers again.
Speaker 1 (03:59):
And that is especially benefited the lower income folks because
those were the people that had the most impact from
the pandemic layoffs. So when you had companies trying to
hire them again. For a lot of these service industry jobs,
that had to shutter in the pandemic, you saw big
wage gains. That has changed now, and in fact, it
has refersed The largest wage increases right now are for
(04:22):
the highest income earners.
Speaker 2 (04:25):
Those high earners are also the people who tend to
be making the most from the stock market.
Speaker 1 (04:30):
It's been just surging this year, so that obviously gives
people confidence. There's research showing that each additional dollar of
stock market wealth raises consumption by about five to fifteen cents.
And then not just the stock market, you know, you
also have to look at wealth that's been created through
home ownership, again, something that disproportionately impacts wealthier people, and
(04:55):
home prices have just increased so much over the past
five years. That also helps me people feel like they
can spend more.
Speaker 2 (05:02):
Would you say that there's a capital K shaped economy
and then there's other lowercase shaped economy sort of playing
out in other sectors like the housing market.
Speaker 3 (05:12):
Yeah.
Speaker 1 (05:13):
Absolutely, We're really in a moment where it's becoming a
really popular metaphor, I think, and it's being used across
a variety of industries. So yeah, you can look at
home buying where things are going really well for that
upper part of the market because again, folks are able
to sell their homes and are able to have more
(05:33):
wealth through the stock market, so they can go buy
a bigger home and not as much at the lower edges.
I've heard it talked about. For example, if you're looking
at how airlines are performing right now, so you look
at the legacy carriers like the big American airlines Delta,
they're doing really well, and they're reporting that high end
consumers business travelers for example, are spending people are flying internationally,
(05:58):
even if maybe not as much domestically, right, so they're
still seeing a lot of revenue from that. And then
some of the smaller like the low cost carriers in
some cases like Spirit filing for bankruptcy, really not doing well.
So it's an interesting dynamic that I think is playing
out in a lot of different areas.
Speaker 2 (06:18):
You can see a similar trend in the food and
hospitality industries too.
Speaker 1 (06:23):
So you have some of these fast casual places that
are a bit more expensive, right, like not the cheapest
option out there, really not doing well. And then restaurant
chains like McDonald's reporting that they're doing okay because they're
getting a lot of these consumers that would be going
to somewhere like Chipotle or Sweet Green for example, now
(06:45):
kind of trading down to something like a McDonald's. You're
also definitely hearing corporations talk about how their luxury consumers
are really supporting their growth. Hearing this from the hotel chains,
also hearing this from Ethan Allen, the furniture company any
that one the higher higher end, they're still seeing a
robust consumption there, and then that's supporting kind of the
(07:06):
rest of their business.
Speaker 3 (07:08):
Businesses have found a way to cater to this divergence.
Speaker 2 (07:12):
Economist Peter Atwater again.
Speaker 3 (07:14):
Meanwhile, for those at the bottom, it's becoming a monthly,
if not now weekly exercise and juggling their finances.
Speaker 2 (07:25):
The Atlanta Fed has reported that some shoppers are shifting
to liquid or powder laundry detergent instead of using pre
portion pots so they can ration it out in smaller amounts.
The grocery chain Kroger has found that lower and middle
income shoppers are using more coupons and buying cheaper brands.
People are trying to find ways to spend less. But
(07:48):
the thing about a K shaped economy is that even
as the top and bottom are getting further apart, looking
at the big picture can be misleading because when it
comes to overall spending or overall growth, the economy looks
like it's doing okay.
Speaker 1 (08:04):
We had stronger economic growth this year than most people
thought we would. We have a pretty low unemployment rate
still right like four point three percent. Things still look
really good. It's just when you look under the hood,
you realize that it's really being driven by a small
number of people. This is important because the US economy,
we're a consumer economy. Two thirds of economic activity in
(08:27):
the US is driven by the consumer. So when you
start to concentrate that in an increasingly smaller number of people,
it just means you have a more fragile system.
Speaker 2 (08:37):
In the early nineties, the top ten percent of earners
accounted for about thirty five percent of the country's consumer spending.
Today they account for nearly fifty percent. And as the
economy gets more top heavy, it also becomes more fragile.
What are the consequences that's after the break. We've talked
(09:08):
a lot about how the current economy is bifurcating, splitting
with the wealthy and everyone else on separate tracks, moving
away from each other. The letter K but economist Peter
Atwater has another image to consider, a Jenga tower.
Speaker 3 (09:24):
I feel like the blocks in the Jenga tower, particularly
at the very foundation, are being pulled away at the top.
So much is happening financially, and that would be okay
if there was some level of robustness at the bottom,
(09:45):
that if the K really represented strength at the top
and the bottom. But what we have now is all
of this oversized activity at the very top. Meanwhile, bel
it is becoming more and more fragile.
Speaker 2 (10:05):
In October, FED chair Jerome Powell said that this bifurcated
economy is something he's watching very very carefully, and Peter's
watching closely too. He believes that if something causes the
wealthiest consumers to pull back on spending, say a big
decline in the stock market, it could send the jungle
blocks toppling.
Speaker 3 (10:26):
We think of these markets as being representative of strength,
and as a researcher, what I know is that invincible
markets are incredibly fragile, and as confidence falls, scrutiny will intensify.
Speaker 2 (10:45):
One area that Peter thinks is especially vulnerable to scrutiny
right now, AI I think.
Speaker 3 (10:52):
What it would take to topple is a relatively small event.
The challenge is the confidence in AI. Individuals will challenge
the benefits of all of this AI abstraction and demand immediate,
(11:13):
tangible results that it does not appear that it can
yet deliver.
Speaker 2 (11:19):
So what would it take to bolster the Jenga Towers
foundations and to start narrowing the diverging parts of the
K It's no easy task. The government shutdown has put
new immediate strains on lower income Americans, withn benefits on Holt,
and longer term fixes haven't found much political momentum, at
(11:39):
least at the federal.
Speaker 1 (11:40):
Level, things like reforming the tax code, looking at things
like the capital gains tax, which really is very low
in this country, right, looking at things like the payroll tax,
estate tax, corporate tax rates. Right, there's a lot of
ways that you could change tax lat to make it
more progressive. I think economists would argue, I don't know
(12:03):
right now how widespread of support there is for doing
things like that at the federal level. Right. We just
had a massive tax reform package go through that in
some ways was kind of the opposite of what we're
talking about, that was perhaps more helpful to higher income
and corporations.
Speaker 2 (12:24):
Is a K shaped economy just a euphemism for an
unequal economy? Is the KY just measuring inequality? Yeah?
Speaker 1 (12:32):
Absolutely. We talked to some economists who noted that inequality
it's not new for the US economy, right We've had
widening inequality for decades here. But widening inequality when it
gets to levels like what we're seeing right now, tends
to not be good for an economy because what it
can mean is that you can actually have slower growth,
(12:54):
and it can even lead to things like social unrest.
Speaker 3 (12:58):
It's not just inequality in terms of an economic sense.
This is inequality in multiple dimensions at once. Because for
those at the bottom, they have scarcity in education, in healthcare,
in childcare, in job opportunity. They have what I call
(13:22):
stacked vulnerability, where the economic piece is just one more thing.
And at the same time, those at the top have
over abundance in everything, power, money, influence, and so it's
become very difficult for those at the bottom to ignore
(13:45):
what's happening around them.
Speaker 2 (13:52):
This is the Big Take from Bloomberg News. I'm Sarah Holder.
To get more from the Big Take and unlimited access
to all of Bloomberg dot com. Subscribe today at Bloomberg
dot com Slash podcast offer. If you liked this episode,
make sure to follow and review The Big Take wherever
you listen to podcasts. It helps people find the show.
Thanks for listening. We'll be back tomorrow
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
If you squint at enough data about the US economy
right now, on income and spending and consumer confidence, there's
a shape that starts to emerge, a letter, the letter K.
Speaker 3 (00:22):
A K shaped economy is the result of a bifurcation
and consumer confidence.
Speaker 2 (00:30):
Economist Peter Atwater is responsible for popularizing the idea of
a K shaped economy in twenty twenty during the global
COVID pandemic.
Speaker 3 (00:39):
We should have hoped for a V shaped recovery coming
out of COVID, where all ships rose together, even a
U shaped recovery where there's a delay in the recovery
but ultimately it all rises together.
Speaker 2 (00:56):
But we didn't get a V. We didn't get a U.
We didn't even get an L where things stayed bad
for everyone. Instead we got a K.
Speaker 1 (01:06):
So, if you think about the letter K, it has
a vertical line, obviously, and then two lines kind of
diverging from the center of that vertical line.
Speaker 2 (01:15):
That's Bloomberg reporter Katerina Sariva, and the divergence she and
Peter are talking about is a split in the paths
of Americans at the top and bottom of the US
economy with the fortunes of those at the top rising
and those at the bottom getting worse. That's how the
economy looked during the recovery from COVID, and it's how
(01:36):
it looks again now.
Speaker 1 (01:38):
Today, fast forward to twenty twenty five. We're again talking
about the K shape because we are seeing kind of
a return to that. We're seeing consumer spending really slow
down for folks at the lower ends of the income spectrum,
while rich folks are doing really well.
Speaker 2 (01:55):
And this time around, the two sides of that K
are getting even farther apart. I'm Sarah Holder, and this
is the big take from Bloomberg News today on the
show A Tale of Two Economies. Why the gap between
America's wealthiest and everyone else is widening, how it's showing
(02:16):
up in company earnings reports, and what the K shape
means for the country's overall financial health. Economist Peter Atwater
studies confidence and how it impacts consumers decision making. That's
(02:37):
what originally drove him to recognize this K shaped pattern.
Speaker 3 (02:42):
Early on in COVID, I saw as white collar workers
their confidence immediately popped when they could work from home.
On the other hand, blue collar workers factory workers, hospital workers.
Their confidence kept deteriorating. So based on that divergence and confidence,
(03:03):
I expected that the economy would follow.
Speaker 2 (03:06):
And Bloomberg's Katarina Sariva says it did follow.
Speaker 1 (03:11):
You had one group of people that were kind of
in the upper echelons of the economy, so think like
high income earners, people with a lot of wealth, and
those people were really doing well. The stock market was
rising a lot already by the end of twenty twenty,
So people with wealth and people with jobs where they
could work from home, for example, we're doing really well. Now.
(03:34):
The other half of the economy really wasn't. We still
had like eleven million people unemployed at the end of
twenty twenty. Unemployment rate was above six percent, So for
anyone who didn't have stocks, for example, maybe didn't own
a home, things were not going great.
Speaker 2 (03:52):
Eventually, the government rolled out stimulus programs, lockdowns lifted, and
companies started rehiring workers again.
Speaker 1 (03:59):
And that is especially benefited the lower income folks because
those were the people that had the most impact from
the pandemic layoffs. So when you had companies trying to
hire them again. For a lot of these service industry jobs,
that had to shutter in the pandemic, you saw big
wage gains. That has changed now, and in fact, it
has refersed The largest wage increases right now are for
(04:22):
the highest income earners.
Speaker 2 (04:25):
Those high earners are also the people who tend to
be making the most from the stock market.
Speaker 1 (04:30):
It's been just surging this year, so that obviously gives
people confidence. There's research showing that each additional dollar of
stock market wealth raises consumption by about five to fifteen cents.
And then not just the stock market, you know, you
also have to look at wealth that's been created through
home ownership, again, something that disproportionately impacts wealthier people, and
(04:55):
home prices have just increased so much over the past
five years. That also helps me people feel like they
can spend more.
Speaker 2 (05:02):
Would you say that there's a capital K shaped economy
and then there's other lowercase shaped economy sort of playing
out in other sectors like the housing market.
Speaker 3 (05:12):
Yeah.
Speaker 1 (05:13):
Absolutely, We're really in a moment where it's becoming a
really popular metaphor, I think, and it's being used across
a variety of industries. So yeah, you can look at
home buying where things are going really well for that
upper part of the market because again, folks are able
to sell their homes and are able to have more
(05:33):
wealth through the stock market, so they can go buy
a bigger home and not as much at the lower edges.
I've heard it talked about. For example, if you're looking
at how airlines are performing right now, so you look
at the legacy carriers like the big American airlines Delta,
they're doing really well, and they're reporting that high end
consumers business travelers for example, are spending people are flying internationally,
(05:58):
even if maybe not as much domestically, right, so they're
still seeing a lot of revenue from that. And then
some of the smaller like the low cost carriers in
some cases like Spirit filing for bankruptcy, really not doing well.
So it's an interesting dynamic that I think is playing
out in a lot of different areas.
Speaker 2 (06:18):
You can see a similar trend in the food and
hospitality industries too.
Speaker 1 (06:23):
So you have some of these fast casual places that
are a bit more expensive, right, like not the cheapest
option out there, really not doing well. And then restaurant
chains like McDonald's reporting that they're doing okay because they're
getting a lot of these consumers that would be going
to somewhere like Chipotle or Sweet Green for example, now
(06:45):
kind of trading down to something like a McDonald's. You're
also definitely hearing corporations talk about how their luxury consumers
are really supporting their growth. Hearing this from the hotel chains,
also hearing this from Ethan Allen, the furniture company any
that one the higher higher end, they're still seeing a
robust consumption there, and then that's supporting kind of the
(07:06):
rest of their business.
Speaker 3 (07:08):
Businesses have found a way to cater to this divergence.
Speaker 2 (07:12):
Economist Peter Atwater again.
Speaker 3 (07:14):
Meanwhile, for those at the bottom, it's becoming a monthly,
if not now weekly exercise and juggling their finances.
Speaker 2 (07:25):
The Atlanta Fed has reported that some shoppers are shifting
to liquid or powder laundry detergent instead of using pre
portion pots so they can ration it out in smaller amounts.
The grocery chain Kroger has found that lower and middle
income shoppers are using more coupons and buying cheaper brands.
People are trying to find ways to spend less. But
(07:48):
the thing about a K shaped economy is that even
as the top and bottom are getting further apart, looking
at the big picture can be misleading because when it
comes to overall spending or overall growth, the economy looks
like it's doing okay.
Speaker 1 (08:04):
We had stronger economic growth this year than most people
thought we would. We have a pretty low unemployment rate
still right like four point three percent. Things still look
really good. It's just when you look under the hood,
you realize that it's really being driven by a small
number of people. This is important because the US economy,
we're a consumer economy. Two thirds of economic activity in
(08:27):
the US is driven by the consumer. So when you
start to concentrate that in an increasingly smaller number of people,
it just means you have a more fragile system.
Speaker 2 (08:37):
In the early nineties, the top ten percent of earners
accounted for about thirty five percent of the country's consumer spending.
Today they account for nearly fifty percent. And as the
economy gets more top heavy, it also becomes more fragile.
What are the consequences that's after the break. We've talked
(09:08):
a lot about how the current economy is bifurcating, splitting
with the wealthy and everyone else on separate tracks, moving
away from each other. The letter K but economist Peter
Atwater has another image to consider, a Jenga tower.
Speaker 3 (09:24):
I feel like the blocks in the Jenga tower, particularly
at the very foundation, are being pulled away at the top.
So much is happening financially, and that would be okay
if there was some level of robustness at the bottom,
(09:45):
that if the K really represented strength at the top
and the bottom. But what we have now is all
of this oversized activity at the very top. Meanwhile, bel
it is becoming more and more fragile.
Speaker 2 (10:05):
In October, FED chair Jerome Powell said that this bifurcated
economy is something he's watching very very carefully, and Peter's
watching closely too. He believes that if something causes the
wealthiest consumers to pull back on spending, say a big
decline in the stock market, it could send the jungle
blocks toppling.
Speaker 3 (10:26):
We think of these markets as being representative of strength,
and as a researcher, what I know is that invincible
markets are incredibly fragile, and as confidence falls, scrutiny will intensify.
Speaker 2 (10:45):
One area that Peter thinks is especially vulnerable to scrutiny
right now, AI I think.
Speaker 3 (10:52):
What it would take to topple is a relatively small event.
The challenge is the confidence in AI. Individuals will challenge
the benefits of all of this AI abstraction and demand immediate,
(11:13):
tangible results that it does not appear that it can
yet deliver.
Speaker 2 (11:19):
So what would it take to bolster the Jenga Towers
foundations and to start narrowing the diverging parts of the
K It's no easy task. The government shutdown has put
new immediate strains on lower income Americans, withn benefits on Holt,
and longer term fixes haven't found much political momentum, at
(11:39):
least at the federal.
Speaker 1 (11:40):
Level, things like reforming the tax code, looking at things
like the capital gains tax, which really is very low
in this country, right, looking at things like the payroll tax,
estate tax, corporate tax rates. Right, there's a lot of
ways that you could change tax lat to make it
more progressive. I think economists would argue, I don't know
(12:03):
right now how widespread of support there is for doing
things like that at the federal level. Right. We just
had a massive tax reform package go through that in
some ways was kind of the opposite of what we're
talking about, that was perhaps more helpful to higher income
and corporations.
Speaker 2 (12:24):
Is a K shaped economy just a euphemism for an
unequal economy? Is the KY just measuring inequality? Yeah?
Speaker 1 (12:32):
Absolutely. We talked to some economists who noted that inequality
it's not new for the US economy, right We've had
widening inequality for decades here. But widening inequality when it
gets to levels like what we're seeing right now, tends
to not be good for an economy because what it
can mean is that you can actually have slower growth,
(12:54):
and it can even lead to things like social unrest.
Speaker 3 (12:58):
It's not just inequality in terms of an economic sense.
This is inequality in multiple dimensions at once. Because for
those at the bottom, they have scarcity in education, in healthcare,
in childcare, in job opportunity. They have what I call
(13:22):
stacked vulnerability, where the economic piece is just one more thing.
And at the same time, those at the top have
over abundance in everything, power, money, influence, and so it's
become very difficult for those at the bottom to ignore
(13:45):
what's happening around them.
Speaker 2 (13:52):
This is the Big Take from Bloomberg News. I'm Sarah Holder.
To get more from the Big Take and unlimited access
to all of Bloomberg dot com. Subscribe today at Bloomberg
dot com Slash podcast offer. If you liked this episode,
make sure to follow and review The Big Take wherever
you listen to podcasts. It helps people find the show.
Thanks for listening. We'll be back tomorrow
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Sarah Holder
Saleha Mohsin
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