The U.S. economy has been growing. Consumer spending has held up. The labor market has stayed relatively tight. On paper, the picture looks resilient.
A new analysis from the Federal Reserve Bank of New York shows what is underneath that surface. And the reality is considerably more uncomfortable than the headline numbers suggest.
New York Fed finds cracks in the U.S. economy
Researchers at the New York Fed published a two-part analysis on May 1 through its Liberty Street Economics blog, examining diverging consumer spending trends across income levels.
The conclusion is direct: Spending growth since 2023 has been driven almost entirely by high-income households, defined as those earning more than $125,000 per year, according to CNBC.
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The cumulative real spending growth numbers since 2023 tell the story clearly. High-income households recorded growth of approximately 7.6% through March 2026. Middle-income households gained about 3%. Low-income households, those earning under $40,000 per year, gained just over 1%, according to Axios.
What makes the finding more striking is the pre-pandemic baseline. Before Covid, lower-income households actually outpaced the wealthy in spending growth. The divergence opened in 2023, shortly after pandemic-era subsidies for low- and middle-income households expired, Axios noted.
The researchers’ exact warning on shaky economy
“Reliance on a single segment of the economy has important implications for spending growth and its fragility, as well as for economic vulnerability and policy,” the New York Fed researchers wrote, according to Liberty Street Economics.
The researchers include Rajashri Chakrabarti, Thu Pham, Beck Pierce, and Maxim Pinkovskiy, all from the New York Fed’s Research and Statistics Group. The two-part series represents the latest release of the bank’s Economic Heterogeneity Indicators, a data series specifically designed to track how macroeconomic outcomes differ across income, demographic, and geographic groups, the New York Fed confirmed.
The warning embedded in that quote is specific. An economy that depends heavily on a single income segment for its spending growth becomes vulnerable the moment that segment pulls back.
For the U.S. right now, that segment is wealthy households whose spending is tied not just to wages, but also to financial asset values.
Why wealth, not just wages, is driving the gap
The New York Fed’s companion paper examines what is actually behind the divergence. Wage growth alone does not explain the K-shaped pattern. The more significant factor is the wealth effect, according to Liberty Street Economics.
Since 2023, high-income households have benefited significantly from rising equity and housing values. That increase in asset wealth has bolstered consumer confidence and discretionary spending among affluent households in ways that wages alone would not fully explain.
Wealthy households also spend a disproportionately large share of their consumption on luxury goods, high-end restaurants, and entertainment relative to any other income group, CNBC noted.
On the other side of that divide, low-income households have faced inflation running persistently above the national average since late 2022.
That creates a double constraint. They are paying more for essentials while also having less financial cushion. Their ability to absorb shocks or increase discretionary spending has been structurally limited as a result.
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The gas price problem making it worse
A separate New York Fed paper published May 6 adds an immediate dimension to the K-shaped economy story. Following the Strait of Hormuz closure in March 2026, gasoline prices surged by nearly $1 per gallon, reaching a national average of $4.30, according to CNBC.
The behavioral response split sharply along income lines. Lower-income households, those earning under $40,000, increased gas spending by the least of all income groups during the March price spike.
They compensated by reducing actual consumption, carpooling, or switching to public transit where available. Higher-income households, meanwhile, barely changed their behavior, CNBC confirmed.
“Thus, the K-shaped consumption pattern in both nominal and real gasoline spending was strongly evident in March 2026,” the researchers wrote, according to CNBC.
Key figures from the New York Fed’s K-shaped economy research:
- Cumulative real spending growth since 2023: High-income households +7.6%, middle-income +3%, low-income +1%, according to Axios
- High-income threshold used by researchers: Households earning more than $125,000 per year, CNBC noted
- Low-income threshold: Households earning under $40,000 per year, according to Liberty Street Economics
- Divergence start date: 2023, shortly after pandemic-era subsidies for lower- and middle-income households expired, Axios confirmed
- Low-income inflation: Above the national average consistently since late 2022, Liberty Street Economics indicated
- National average gas price as of May 2026: $4.30 per gallon, up nearly $1 since the Hormuz closure in March, according to CNBC
Why economic imbalances matter beyond the data
The practical risk the New York Fed is flagging is straightforward: an economy whose consumer spending depends heavily on asset-rich households becomes more sensitive to financial conditions than traditional indicators like unemployment or wage growth would suggest.
If equity markets correct, if housing values stall, or if wealthy consumer confidence weakens, the engine driving aggregate spending loses power quickly. The households that would normally absorb some of that slack, the middle and lower income groups, are already stretched. They do not have the financial cushion to step in and compensate.
That dynamic is what makes the K-shaped economy a policy problem, not just an inequality observation. Growth can look fine in aggregate while the foundation supporting it becomes progressively narrower.
The New York Fed’s research is a signal that the gap between the headline and the reality is now wide enough to matter for how policymakers, investors, and businesses read the economic environment ahead.
Related: Rising corporate profits, falling wages drive K-shaped economy
