It’s not Greek life or a spelling bee. In economic circles, the letters K, C and E have become shorthand for describing the current state of the U.S. economy, and the debate over which letter fits best is heating up.
For years after the pandemic recovery, the prevailing view among economists was that the economy was K-shaped — meaning different groups were experiencing vastly different fortunes, with the arms of the K heading in opposite directions. Now, that consensus is being challenged, with some arguing the economy has morphed into a C or an E.
“This is some of the alphabet soup,” said Joel Mokyr, a Nobel Prize-winning economic historian at Northwestern University.
The labeling contest isn’t just academic. The divergence between low- and high-income consumers has been a central concern for politicians, policymakers and executives at consumer companies. How the economy is characterized could influence everything from corporate strategy to election messaging.
Letter-based descriptions of the economy have been around for decades, with V, L and W shapes used to describe past recessions and recoveries. But it’s rare for such a label to stick with the public years after a downturn, according to Don Rissmiller, chief economist at Baird Strategas. “During recessions and recoveries, the letters are really popular,” he said. “To use a letter in the middle of a business cycle, I guess we could say that’s a little new.”
The case for a C-shaped economy
Treasury Secretary Scott Bessent made headlines earlier this month when he declared the K-shaped economy over, arguing that a C-shaped economy is emerging — one where the bottom of the income spectrum is gaining ground. He cited wage gains among lower earners and tax cuts, including President Donald Trump’s “no tax on tips” and “no tax on overtime” policies, as boosts for the worst-off.
“I got sick of hearing about this K-shaped economy,” Bessent told CNBC. “I can say here definitively, the K-shaped economy is over.”
Hilton Worldwide CEO Christopher Nassetta echoed that view, telling analysts that his company is “definitely seeing” a C-shaped economy. He noted that the convergence isn’t being driven by weakness at the top but by a rebound in middle- and upper-middle-income segments, which have swung from negative growth to rates as high as 6%. “The middle class is getting back in the game,” Nassetta said. “It’s really impossible to deny.”
Why the K might persist
But not everyone is ready to bury the K. Anthony Chan, former chief economist at JPMorgan, pointed to the U.S. conflict with Iran as a wrench in the C-shaped narrative. Lower-income consumers spend a larger share of their income on energy, he said, so surging gas prices could hit them hardest and offset any gains from tax refunds or housing policies. “I’m the first to say that we can make some progress,” Chan said. “But nothing of the sort of progress that we can say we can bury the K-shaped economy.”
Consumer sentiment data also complicates the C story. The University of Michigan’s closely watched survey, released Friday, showed sentiment dropped 11% in August from a year ago, nearing record lows. Confidence among low- and middle-income respondents took an outsized hit, according to the survey’s director, Joanne Hsu.
Several consumer companies report they still see a K-shaped reality. Shane Grant, Colgate-Palmolive’s operations chief for the Americas, said at a Deutsche Bank conference in June, “The dynamic of a K-shaped economy we see is alive and well in the United States.” Lowe’s merchandising executive Bill Boltz said on the home retailer’s earnings call last week that the K-shaped economy “continues to shape” spending trends. Constellation Brands CEO Nicholas Fink told analysts the economy looks “increasingly” like a K.
Signs of convergence — or a new shape?
Others see cracks in the K. A Federal Reserve Bank of Richmond report published last month found that while income growth didn’t show a K-shaped divergence between 2021 and 2023, consumption did. But the Bank of America Institute says that gap began narrowing in May, with higher earners’ credit card spending growth slowing. “What was once a ‘K’-shaped consumer is increasingly becoming one of convergence,” wrote David Michael Tinsley, the institute’s senior economist.
Still, New York Fed research on credit card debt shows the K theme persists, with combined balances hitting a near-record $1.26 trillion in the second quarter — evidence, researchers said, that “there are a lot of households that live paycheck to paycheck.”
Some economists now propose an E-shape, describing three distinct income classes that are neither diverging nor converging. “Each group has found a way to live,” said Rissmiller. “It may not be the best outcome, but it is an outcome that looks more stable than not.”
Michael Eisenband of FTI Consulting said in a client note that the E-shape “better illustrates” the spending patterns among income groups, calling it a “more fitting depiction of the times.” Heather Long, chief economist at Navy Federal Credit Union, favors the E because it captures a middle class that’s “just hanging on,” and said a convergence view requires “some real mental gymnastics.”
Wyndham Hotels & Resorts CEO Geoff Ballotti said its middle-tier consumer is “feeling better” and “regaining confidence,” but that could reflect either a C or E shape. And Somnigroup International CEO Scott Thompson admitted he hadn’t considered the E, saying, “That’s a new one for me. I was ready for K; hadn’t thought about E.”
Source: www.cnbc.com — https://www.cnbc.com/2026/08/29/k-shaped-economy-c-shaped-e-shape.html
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