U.S. economic data has been clear for well over a year: The top earners in this country are doing quite well.
Thanks to U.S. stock indexes that reached new all-time highs earlier this month, the top-earning households, who hold the majority of shares, can spend more than their less-wealthy counterparts, who are struggling amid higher grocery and energy prices.
That divergence has led to the emergence of a K-shaped economy, where the people in the upper part of the “K” earn more and spend more, while those at the bottom earn less and spend less.
But analysts at Bank of America, who have been documenting this phenomenon using data from the consumer banking arm, have spotted a change in recent weeks as consumer spending growth slowed to 5% year over year in July from 6.3% growth in June.
There are a few reasons for the decline, according to BofA, including the fading of temporary boosts such as World Cup-related spending and the timing of major online promotions.
The reasons are numerous, but the result is singular — even the top earners are starting to spend less.
Spending growth slows markedly in July
Earlier in the year, lower-income Americans were able to boost their spending, thanks to tax refunds. But as those funds have dwindled, so has their non-energy spending, as they dedicate more of their paychecks to gas amid the Iran war.
While credit and debit card spending per household increased a robust 5% year over year (a top-three reading in the past three years and more than four times the 2025 average), excluding gasoline, total spending actually only rose 4.3%, down from 5.6% in June.
“July’s moderation in consumer spending growth was not surprising, as June spending was boosted by temporary factors. First, there was a timing mismatch in online promotions between 2026 and 2025, with online purchases pulled forward into June this year, whereas most occurred in July last year,” BofA analysts wrote in a report viewed by TheStreet.
“Second, June was likely the peak of World Cup-related spending, so some cooling in categories like restaurants and bars was to be expected. Third, fluctuations in global oil prices, and consequently gasoline prices, continued to affect total card spending, with gasoline spending easing somewhat in July.”
But these changes aren’t too concerning for the analysts because even when accounting for those factors, U.S. consumers have shown “fairly consistent” spending growth during the summer months, the analysts noted.
K-shaped economy experiences “the Great Convergence”
BoA analysts have been writing about the K-shaped economy for more than a year now, defining the phenomenon as a growing divide between higher- and lower-income household spending and wage growth.
But since May, BofA has noticed a significant narrowing in this gap. It’s to the point that July spending and wage growth have largely converged across income levels, in a phenomenon they have dubbed “The Great Convergence.”
Lower-income households increased spending 5.4% year over year in July, while middle-income spenders saw an increase of only 4.9%. BofA noticed a similar trend in discretionary spending.
“In our view, one factor behind the narrowing spending growth gap is stronger after-tax wage growth. For lower- and middle-income households, after-tax wage growth rose to 5.2% YoY and 4.2% YoY, respectively, in July. These gains in wage growth have left lower- and middle-income households looking more ‘balanced,’ with a narrower gap between spending and wage growth. In fact, that gap has effectively disappeared for lower-income households,” BoA said.
However, even as these data points converge, the top 5% of earners remain an exception, with their wages and spending continuing to outpace the rest.
Equity markets support highest earners: what they’re buying with extra money
The K-shaped economy endures despite the convergence in the middle, as spending growth continues to outpace easing wage growth at the top of the pyramid.
“In our view, the decline in after-tax wage growth in this top 5% cohort is likely to be largely due to the fading impact of strong bonus payments earlier in the year,” according to analysts. “At the same time, their continued strong card spending is likely being driven by the wealth effect from higher equity prices. This is especially true given the ongoing market strength, as equity ownership is skewed towards those with higher incomes: the S&P 500 was up nearly 20% YoY in July.”
That equity growth isn’t just helping the rich, however. BoA’s internal 401(K) data show that average balances on retirement accounts were significantly higher in the second quarter of 2026 compared to the past few years.
But the wealth effect from retirement accounts “may not be as significant” as the effect stems from increases in more liquid investments, such as directly held equities.
So what are the rich buying with their extra money?
According to BofA data, higher-income household spending growth is concentrated in general merchandise, lodging, and durables (excluding electronics). The largest gap in spending between low- and high-income households, however, is in airlines and clothing.
On the flip side, low-income workers outpace their wealthier cohorts in restaurant spending growth.
Related: BofA sees new trends forming in the K-shaped economy
