K, C or E? Why economists can’t agree on the shape of today’s economy

Economists, executives and policymakers are debating whether the U.S. economy still resembles a K, a C or an E. The K-shaped recovery described unequal postpandemic expansion, with higher- and lower-income consumers moving in opposite directions. Historical labels including V, L and W typically faded after recessions, but Don Rissmiller, chief economist at Baird Strategas, said the K’s persistence reflects heightened concern about wealth inequality. Nobel Prize-winning economic historian Joel Mokyr called the debate “alphabet soup.” Treasury Secretary Scott Bessent said the K was “over,” citing lower-earner wage gains and President Donald Trump’s “no tax on tips” and “no tax on overtime” policies. He expects a C-shaped economy in which lower-income consumers gain ground. Hilton Worldwide CEO Christopher Nassetta likewise sees a C, saying middle- and upper-middle-income segments shifted from declines to growth of as much as 6%, and that the middle class is “getting back in the game.” Anthony Chan, JPMorgan’s former chief economist, challenged that view. The U.S. war with Iran could keep energy prices and inflation elevated, disproportionately hurting lower-income households that spend more on energy. He said that could offset gains from tax refunds and housing-affordability efforts. Evidence for a continuing K remains substantial. University of Michigan consumer sentiment fell 11% in August from a year earlier and was near record lows, with low- and middle-income respondents hit hardest, according to survey director Joanne Hsu. Colgate-Palmolive Americas operations chief Shane Grant, Lowe’s merchandising executive Bill Boltz and Constellation Brands CEO Nicholas Fink, whose brands include Modelo and Robert Mondavi, continue to see K-shaped spending. The Federal Reserve Bank of Richmond found consumption diverged clearly between 2021 and 2023, while Bank of America Institute said credit-card spending gaps began narrowing in May. Senior economist David Michael Tinsley described increasing convergence. Yet New York Fed research showed second-quarter credit-card balances near a record $1.26 trillion, indicating many households remain financially strained. The E view describes three income groups on parallel but unequal tracks. FTI Consulting’s Michael Eisenband, Navy Federal Credit Union’s Heather Long and Wyndham Hotels & Resorts CEO Geoff Ballotti found it useful, while Somnigroup International CEO Scott Thompson said the concept was new to him during a Tempur-Pedic earnings call.