The US economy is growing. Unemployment is low. Consumer spending is holding up. And yet, if you ask lower-income Americans how things feel, they will tell you it is getting harder every month. They are both right.
Two separate datasets released this week put numbers to something that has been building for months: the gap between what high earners and low earners are making - and what they can afford - is now wider than at any point in the past decade. Not a little wider. The widest since Bank of America started tracking it in 2015.
CNBC's senior economics reporter Steve Liesman broke the story this morning on Squawk Box, drawing on fresh data from the Bank of America Institute and the Federal Reserve Bank of New York. The numbers tell a story of an economy splitting in two - visibly, measurably, and right now.
The background
The phrase "K-shaped economy" entered common use during the pandemic. The letter K captures the idea visually: after a shock, some people's finances recover and keep climbing (the upper arm of the K), while others fall further behind (the lower arm). It is not a new concept - income inequality in America has been widening for decades - but the pandemic turbocharged it, and what followed scrambled the usual pattern.
Between 2021 and 2023, something unusual happened. Low-wage workers actually gained ground. A tight labor market- meaning more job openings than workers available to fill them - gave lower-paid employees rare leverage. Employers competing for workers raised wages at the bottom end of the scale faster than at the top. The K, briefly, started to close.
That window appears to have shut.
The labor market has cooled since then. Job openings have fallen, and the hiring and firing dynamic has frozen. Companies are neither expanding aggressively nor laying people off in large numbers. In that environment, workers have less power to demand raises. Entry-level positions, in particular, have become harder to find. And without a new job offer to negotiate against, the easiest raise to skip is the one you give the person who already works for you.
Inflation has also been unusually persistent. The rate at which prices rise across the economy broadly came down from its 9.1% peak in 2022, but has lingered around 3% - above the Federal Reserve's 2% target. When wage growth at the bottom barely clears 1%, that gap between income and costs lands hard on households with no financial cushion to absorb it.
What is actually happening
Bank of America Institute's March 2026 employment report found that after-tax wage growth for higher-income households reached 5.6% year-on-year in March. For middle-income households it was 2%. For lower-income households, it was 1%. That is not the lowest-ever figure - but the gap between the top and the bottom is the largest the bank's data series has recorded.
The bank's methodology here matters. This is not a government survey. It is drawn from actual deposit account data - the wage payments flowing into millions of real customer accounts, anonymized and aggregated. When a paycheck hits your Bank of America account, the bank can track how it compares to last year's. That makes it unusually real-time and unusually hard to dismiss.
ADP, the payroll processing giant, runs similar analysis across more than 26 million private sector paychecks. The CNBC segment cited ADP data showing the highest-paid workers earning 6.4 times what the lowest-paid workers bring in - up from a ratio of 5.9 in 2023. In two years, the relative distance between a top earner and a bottom earner has widened by roughly 8%.
One driver appears to be bonuses. A surge in bonus payouts among higher-income households is pulling up their average wage figures early in 2026, according to Bank of America Institute economists. Meanwhile, bonus growth for middle- and lower-income workers is running negative. The people most dependent on a regular paycheck are seeing no bonus bump. The people who already earn the most are.
On the spending side, the gap is being made worse by gas prices. New York Fed researchers tracking 200,000 consumer credit card accounts found that after the Iran war drove prices at the pump up nearly a dollar a gallon in March - to an average $3.81, now reaching $4.30 - households earning under $40,000 a year cut their actual gas consumption by 7% while still spending 12% more. They drove less and paid more anyway. Higher-income households, those earning over $125,000, spent 19% more on gas in March but cut their consumption by just 1%. They absorbed the price shock and kept driving.
Real incomes - wages adjusted for what inflation actually costs - turned negative in each of the past two months, and in four of the last six months.
The money trail
The mechanics of this split are easier to understand than most economic stories.
At the top, several forces are compounding simultaneously. Bonuses, which are concentrated heavily among professional and managerial workers, have come back strong after a quiet 2024. Stock markets have risen - and according to Gallup, 87% of American stock owners live in households earning $100,000 or more. The wealth effect from rising asset prices - houses, equities, retirement accounts - makes wealthier households feel richer and spend more freely. American Express recently reported soaring restaurant reservations and travel bookings among its customer base, which skews heavily toward higher earners. When a company whose customers are mostly affluent reports a boom in spending, it is confirming the story, not contradicting it.
At the bottom, the picture is the reverse of all of the above. No meaningful stock exposure. Limited home equity gains. Wages flat in real terms. And now, a gas price shock that functions like a tax that falls hardest on those who can least afford it.
The mechanism is straightforward: lower-income households spend a far larger share of their income on unavoidable costs - gas, groceries, utilities. Bank of America Institute found that among the lowest-income third of households, one in ten now spends 10% of their income on gas alone. Higher-income households, on average, spend 2.7%. When gas prices rise 50% since the start of a war, those two groups are not experiencing the same economic event.
The macroeconomic risk is structural. Consumer spending drives roughly 70% of US GDP - the total value of everything the country produces in a year. If that spending increasingly depends on a narrow slice of high-income households while everyone else cuts back, the base holding up the economy narrows. Barclays US economist Pooja Sriram told CNBC that the current divergence represents a meaningful vulnerability heading into the second half of the year. An economy that depends on the spending habits of the affluent is one shock away from a much harder landing.
The savings rate - the share of income households set aside rather than spend - has also been declining, reaching a three-year low according to the CNBC segment. That is the last buffer. Lower-income households have been running down savings to paper over the gap between what they earn and what everything costs. When that cushion is gone, spending stops.
What people are doing about it
The behavioral responses showing up in the data are practical and quiet. Lower-income households cut driving, likely by carpooling, combining errands, or switching to public transit where it exists. Spending on discretionary items - things that are not groceries, gas, or utilities - slowed in March for lower-income households even as it rose for wealthier ones.
McDonald's US traffic fell 1.3% in January due to winter storms, rebounded 3.8% in February, then slipped 1.2% in March - a pattern that Liesman flagged as a live question: are people going to McDonald's because they feel financially pressured and need a cheap option, or are they avoiding it because even fast food has become expensive? Both dynamics are being discussed. McDonald's is no longer unambiguously the trade-down destination; at today's prices, for some households it is simply less affordable than cooking at home.
Whirlpool, which makes appliances mostly bought by middle-income households during home moves or renovations, reported what it described as recession-level declines in demand in today's earnings. The divergence between its experience and that of companies serving wealthier customers - Amex reporting a boom, Disney optimistic - is the K-shape made visible in corporate earnings calls.
Nearly 29% of lower-income US households are now living paycheck to paycheck, according to Bank of America Institute data defining that threshold as spending more than 95% of household income on necessities. That is up from 27.1% in 2023. The equivalent figure for higher-income households has barely moved. Credit card utilization - the share of available credit being used - has risen faster among lower-income households than any other group since 2019.
The bottom line
The K-shaped economy is not a theory anymore - it is a measurement. According to Bank of America's deposit data, the wage gap between the highest and lowest earners is now at its widest point since at least 2015, driven by bonus surges at the top and stagnant real wages at the bottom. A gas price shock triggered by the Iran war has deepened the split, cutting into lower-income households' consumption in ways not seen even after Russia's 2022 invasion of Ukraine. The headline numbers still look acceptable. Underneath them, the structural divergence is widening fast enough that multiple independent data sources - a major bank, the Federal Reserve, a payroll processor - are all pointing in the same direction at the same time.
Timeline
- 2021 - 2023 - Tight labor markets deliver unusually strong wage growth for lower-income workers, briefly narrowing the income gap after the pandemic
- 2022 - Russia's invasion of Ukraine triggers a gas price spike; lower-income households cut consumption but the effect is cushioned by remaining government stimulus funds
- Late 2022 - Wage growth for lower-income workers begins slowing sharply as job openings decline and labor market leverage erodes
- 2023 - ADP data shows the wage ratio of highest-to-lowest paid workers at 5.9 times; Bank of America tracks the gap narrowing from its pandemic peak
- 2024 - Bank of America Institute warns the narrowing of income inequality achieved during the pandemic has "gone into reverse"
- January 2026 - Federal Reserve data shows the top 1% of US households own 31.7% of all wealth - the highest share since the Fed began tracking in 1989
- February 28, 2026 - The Iran war begins; oil markets tighten immediately
- March 2026 - Gas prices rise roughly 25% in a single month, reaching an average of $3.81 per gallon; Bank of America Institute's employment report records wage growth of 5.6% for high earners against 1% for low earners - the widest gap since 2015
- April 29, 2026 - TheStreet reports the Bank of America wage gap is the largest in the data series' history
- May 6, 2026 - New York Fed releases research showing lower-income households cut gas consumption by 7% in March while still spending 12% more; gap between income groups larger than during the 2022 Ukraine shock; gas prices now 50% above pre-war levels at $4.30 per gallon
- May 7, 2026 - CNBC's Steve Liesman presents both datasets on Squawk Box; real incomes confirmed negative in two of the past two months and four of the last six; ADP data shows highest-paid workers now earning 6.4 times what the lowest-paid earn, up from 5.9 in 2023
Summary
Who: Lower-income American households (earning under $40,000 per year) and higher-income households (earning over $125,000), tracked through Bank of America Institute deposit data, ADP payroll records, and New York Fed credit card spending panels
What: The wage growth gap between the highest and lowest earners has reached its widest point since 2015; gas prices triggered by the Iran war are hitting lower-income households harder than any comparable shock since 2022; real incomes have turned negative for the majority of workers
When: March 2026 data, published May 6 - 7, 2026; the trend has been building since late 2022
Where: United States; the effect is national but concentrated in areas with limited public transit options where driving is unavoidable
Why: A combination of bonus surges among high earners, stagnant wages at the bottom of the labor market, a frozen hiring environment that removes workers' bargaining power, persistent inflation running above wage growth for lower-income households, and a war-driven energy price shock that functions as a regressive cost hitting those with least financial cushion hardest