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What kind of holiday season will we have? If recent history is a guide, it will be K-shaped.
The phrase “K-shaped” gained popularity during the pandemic as a way of describing an economy in which many white-collar stay-at-home workers did fine, while those in jobs that couldn’t be done remotely struggled. It has since come to define just about every area of the highly bifurcated American economy.
Consider income growth, which was higher for low-income households right before and during the pandemic — in large part because of support from the Biden administration — but has diverged since.
Wage growth for low-income workers is now lower than for middle- and high-income workers. This is partly explained by the artificial intelligence boom that is showing up in higher unemployment figures for young college graduates as more entry-level white-collar work is done by technology.
Asset growth is K-shaped too, with higher-income households seeing lots of paper wealth from stocks at still near-record highs and rising home prices. According to investment group Apollo, the cash flow received in fixed income, including private credit, is nearing levels not seen in decades.
That wealth effect has propelled the existing K-shaped trend in consumer spending. The percentage of overall spending done by the top 10 per cent of the socio-economic spectrum has risen from 36 per cent to nearly half since 1989, according to Moody’s analytics. Luxury brands — particularly the top ones that are taking more and more market share — will probably do just fine this shopping season. Hermès is posting strong returns, and LVMH recently beat earnings estimates.
Rich consumers are likely to drive Christmas spending. One autumn survey found that more than half of American luxury consumers planned to spend as much if not more in the run-up to the holiday season as they did in the months before, though they may spend on different things than in the past.
Goods continue to be trumped by “experiences”, such as hotels, flights and top theatre shows or sports tickets, which can now easily cost thousands or even tens of thousands of dollars. Delta Air Lines president Glen Hauenstein recently said “much of our growth if not all of it, will be in the premium sectors”.
Meanwhile, the lower quintile struggles. The McDonald’s chain notes that consumer foot traffic among less affluent customers is down significantly. Even somewhat higher-end, healthy fast-food spots like Cava, Chipotle and Sweetgreen have slower same-store sales growth, as the younger consumers who made $20 rice bowls popular stay home.
This reflects another trend likely to gain steam: the shrinking middle. Since last summer, households making between $50,000 and $100,000 a year have shifted from tracking the confidence figures of the upper end of the market to feeling more pessimistic, like low-earning ones.
This picture comes through strongly in a report from the Federal Reserve Bank of Boston showing a K-shaped credit market. High-end consumers are propelling the growth in credit cards, while shoppers at the lower end are struggling but are often spending more as a percentage of income on credit cards to keep up with the cost of living.
Data from analytics company Fico shows that the average US credit card score slipped to 715 in 2025, following another decline last January, as delinquencies on things like credit cards, auto loans and student loans have risen, even while total balances are at a record high.
This is telling. Working people know very well which bills can and should be paid first, and which can slide a month or two without causing too much trouble. Auto-loan delinquencies, for example, have historically been a sign of bigger trouble down the road.
You can see other signs, like the fact that consumer discretionary stocks in recent months have been outperforming consumer staples. And that outrage over cuts to Medicaid and payments from the supplemental nutrition assistance programme, which support food and healthcare budgets at the lower end of the spectrum, kept the government shut down for weeks.
While we know that the bottom half of the K is shaky, a big question is where the top end will go from here. Peter Atwater, the behavioural economist who helped popularise the term, advises investors to watch the stock price of American Express, the high-end credit card, for signs of the financial health of upper-income consumers, particularly as both prices and unemployment numbers rise.
“Over the past several years,” Atwater says, “America’s K-shaped economy has morphed into a top-heavy Jenga tower. Revenues, and more importantly corporate profits, are highly concentrated at the very top. Moreover, these profits often subsidise losses at the bottom.” Should we continue to believe that half a letter can support an entire economy?
Maybe, maybe not. But what is already clear in New York, where I’ll be spending Christmas, is that the asymmetry of the K-shaped economy is reshaping local politics. Former mayor Michael Bloomberg once called this K-shaped city a “luxury brand”. Mayor-elect Zohran Mamdani is aiming for a new monogram.