Lower-income spending shows signs of rebound as K-shaped gap narrows
Bank of America says recent card data show lower-income households lifting spending while higher-income consumption holds steady.
By Daniel Okafor · Business Editor
3 min read
Lower-income U.S. households have recently increased spending on goods and services excluding gasoline, according to Bank of America, narrowing a divide that has defined consumer behavior since late 2024 and early 2025. The shift matters because it could mark an easing of the so-called K-shaped economy, in which higher earners keep advancing while lower earners fall behind.
Bank of America said its card data for the past week showed a much smaller gap between spending by higher- and lower-income customers. The bank said wealthier households have continued to spend around the level seen since March, while lower-income consumers have begun to pick up their purchases.
The bank framed the data as early and tentative, rather than proof of a lasting turn. Bank of America economist Shruti Mishra said a recent Bank of America Institute report found stronger after-tax wage growth for lower- and middle-income households.
“It is still too early to confirm a sustained shift, as the recent improvement could partly reflect tax relief, but the data bear watching,” Mishra said.
Oil and inflation pressures ease
Bank of America pointed to recent geopolitical developments as one possible reason households may feel less pressure. The U.S. and Iran agreed to a deal to halt military conflict in the Middle East, according to the report, even though talks were abruptly called off the same morning.
The conflict had pushed up costs for gasoline, air travel and groceries, with food supply disruptions cited as one factor. A resolution could allow some of those elevated prices to move closer to prior levels, according to the report.
Trading Economics data cited in the report showed Brent crude had fallen sharply in the past week. Oil had reached a little above $113 a barrel at the height of the geopolitical tension and was at $79 at the time of the report.
Jobs data offer another support
The labor market also appears to be helping consumers, according to government and private payroll data cited in the report. The Bureau of Labor Statistics said the unemployment rate was 4.3% in its latest jobs report, while ADP said private employers added 122,000 jobs in May.
ADP chief economist Nela Richardson said the latest hiring figures showed wider gains across the labor market. “Hiring was more broad-based in May than we’ve seen in the last few years,” Richardson said. “The labor market continues to show sustained momentum going into the summer hiring season.”
Mishra said a continued narrowing in spending differences could reflect stronger hiring in blue-collar industries, including leisure and hospitality, construction and manufacturing. She also cited signs of improvement in professional and business services after job losses in 2025 that hit younger, lower-income workers more heavily.
“Potential drivers could be reduced tariff uncertainty, ongoing equity market strength, and consequently robust higher-income spending,” Mishra said.
The New York Fed has reported a related pattern in wages. Its latest wage inflation report found that most industries have seen wage growth slow in tandem since October 2022, with public administration and mining and construction standing out as exceptions.
The New York Fed said wage growth in mining and construction has remained more consistent and stronger than in the rest of the economy. The report said that strength could be tied to construction of AI data centers, where sustained demand may be supporting pay.
This story draws on original reporting from Fortune.