Concerns are growing in the U.S. about a K-shaped economy, where wealthier households continue to earn and spend more, while lower-income groups struggle to keep up.
The U.S. is experiencing a "two-speed" economy, marked by widening income disparities and mounting pressure on low-income families, Federal Reserve Governor Michael Barr recently said at a virtual event on community development earlier this month.
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"We have kind of a two-speed economy right now. Wealthier households are doing quite well, most of them, but low-income households, many of them are struggling," Barr said. "People are worried about whether if they lost their job, whether they might get a job in the future. And so we have to pay careful attention to making sure that the labor market is solid."
A ‘Bifurcated Economy'
Barr isn't the first to warn about the economy's growing divide. Fed Chair Jerome Powell told the press conference following last month's 25-basis-point rate cut that there is plenty of "anecdotal data" pointing to this bifurcation.
"If you listen to the earnings calls or the reports of big, public, consumer-facing companies, many, many of them are saying that there’s a bifurcated economy there and that consumers at the lower end are struggling and buying less and shifting to lower cost products, but that at the top, people are spending at the higher income and wealth," Powell said.
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‘Great Jobs, Bank Accounts'
Meanwhile, cruise giant Royal Caribbean Cruises Ltd (NYSE:RCL) said in its Q3 earnings report last month that customer spending remains strong, with "greater participation" despite higher prices.
"The consumer or our guest is strong," Chief Executive Jason Liberty said on the company's earnings call. "They have great jobs. They have great balance sheets, bank accounts. And they have a strong desire to vacation and build experiences and memories with their friends and family."
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While spending from the wealthy remains strong, millions of Americans are facing labor market headwinds. Latest data from Challenger, Gray & Christmas showed that companies in the US cut about 1.1 million jobs so far in 2025, the highest level since 2020.
The Conference Board's consumer confidence index fell for a third straight month in October to its lowest level in the past six months. However, the research organization said that confidence rose among households earning over $75,000, with the sharpest gains among those making $200,000 or more.
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