K-shaped economy ‘alive and well,’ expert says. What new research shows
New data shows that the so-called K-shaped economy is becoming increasingly evident.
In the wake of the Covid pandemic, K has been used to illustrate Americans’ differing economic experiences: High-income households are getting better off, low-income households fall even further behind.
a new report Credit reporting bureau TransUnion found that credit conditions for a large portion of consumers have improved, while others face higher costs and increased debt burdens.
Michele Raneri, TransUnion’s vice president and head of U.S. research and consulting, said the K-shaped economy is “alive and well.”
According to TransUnion, over the past few years, more borrowers have become either superprime with credit scores of 780 or higher or subprime with credit scores below 600. The dynamic is creating an increasingly bifurcated consumer economy.
“The upper part of the K is very strong,” Raneri said. “Superprime is stable and durable,” he said. “When people get into that group, they don’t get in and out too much.”
Lower-income households in the lower K are “struggling more than they are,” Raneri said. TransUnion found that consumers in this group carry higher debt burdens with increasing debt-to-income ratios, signs of potential financial distress.
“Everyone saw the effects of inflation somewhat equally; no one could escape it,” Raneri said. But when you factor in debt-to-income levels, “you see that lower-income consumers are more impacted here,” he added.
Those who are struggling to make ends meet often turn to credit cards to cover the gap. According to TransUnion’s findings, the average credit card balance per consumer is $6,519, an increase of 2.3% annually.
Consumer spending is now mostly driven by high-income households earning more than $125,000 a year, according to a new study. blog post It was released Friday by the Federal Reserve Bank of New York.
Top earners spend a disproportionately large share of their consumption on luxury goods, upscale restaurants, and entertainment compared to other groups.
beginning of K
New York Fed researchers found that the economy diverges noticeably in 2023, “shortly after most pandemic-era subsidies for low- and middle-income households expire.”
Since then, low-income families The researchers found that while wealth is growing most rapidly for those at the top, people are most affected by long-term inflation.
While consumer spending and credit card balances remain relatively healthy overall, “reliance on a single part of the economy has important implications for economic fragility and policy as well as spending growth and fragility,” New York Fed researchers wrote.
