To borrow a phrase made famous by Sesame Street, today’s economy is brought to you by the letter K and the number 175,000.
Adopting letters as substitute descriptors for economic conditions is a long-standing practice that includes an L-shape, a sharp decline followed by a long period of stagnation. V-shaped, a steep drop followed by a strong rebound. W-shaped, also known as a double dip, in which a recession is followed by a recovery and then a secondary decline. U-shaped conditions when a recession is followed by a period of stagnation before a gradual recovery.
The K-form is the latest addition to the lexicon of economic letters and is widely attributed to American economist and William & Mary professor Peter Atwater who coined the term in 2020.
Atwater used the K-shape to describe an economic bifurcation that occurred amid a pandemic, as white-collar workers were able to relatively easily transition to working from home and maintain their incomes, while blue-collar workers, whose jobs primarily required in-person attendance, suffered severe economic consequences.
But that K represents a broader divide between the haves and the have-nots in today’s U.S. economy, where higher-income Americans, represented at the top of the K, are prospering while their wealth, largely invested in stocks and real estate, is growing. However, most U.S. households are following the downward K-arm as inflation, rising housing costs and slowing wage growth push lower-income earners into even more dire economic hardship.
In a recent podcast discussion, Mark Zandi, chief economist at Moody’s Analytics, identified the household income line separating those in the upper and lower arms of the K-shaped economy at around $175,000. If your income exceeds this threshold, as about 20% of American households do, your financial health is likely strong and moving in a positive direction. But the 80% of households below this figure face diminishing prospects and more serious challenges in today’s economy.
Phil Dean, chief economist at the Kem C. Gardner Policy Institute at the University of Utah, explained that a closer look at a typical household’s spending compared to income and assets reveals the factors behind the K-shaped divide.
Dean notes that upper-income U.S. households that earn income from their investments benefit from stock markets that have seen tremendous growth this year. So far in 2025, the S&P 500 is up about 17% and the tech-heavy Nasdaq Exchange is up more than 20% from the start of the year.
Federal Reserve data reveals that about 87% of the U.S. stock market is owned by the richest 10% of Americans, while the poorest 50% own just 1.1%, according to a recent Associated Press report.
Dean said that along with the growth of the investment market, the value of real estate has soared in recent years, creating equity and additional wealth for those who own their homes. But the same dynamic has also driven up prices for those residing in rental properties, further straining family budgets and eroding opportunities to save and prosper.
And persistent inflation has a regressive impact on lower-income households, where the cost of basic necessities represents a much larger share of overall income than higher-income families.
“There is growing pressure among younger earners and those on lower incomes,” Dean said. “For example, when food prices rise, the additional cost has a greater impact on low- and middle-income households, while higher-income households are better able to adapt…and may not even notice the changes.” »
A recent poll by the Deseret News/Hinckley Institute of Politics finds that rising prices for consumer goods and services are the top economic concern, as reported by respondents in audience samples both nationally and statewide.
When asked to identify their top economic concern, 44% of Americans and 47% of Utahns identified inflation as their top concern. The second biggest concern was the cost of housing, chosen by 18% of Utahns and 13% of Americans. The top four outcomes in both sample sets were having enough money saved for retirement and concerns about potential job loss.
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While inflation fears were top of mind in Utah across all income categories, housing costs were most prevalent among those earning less than $50,000 a year and between $50,000 and $100,000 a year, where about one in five people chose it as their top economic issue. Among those surveyed in the national survey, concerns about the cost of housing were the top issue for 7 to 12 percent of respondents, depending on their income level.
When asked to assess the impacts of inflation on various household spending categories, state and national survey participants said food prices were most affected by inflation, followed by the costs of housing, health care, utilities and gasoline.
In addition to being better positioned to weather the impacts of current economic conditions, high earners play an outsized role in driving a U.S. economy in which consumer spending accounts for two-thirds of overall economic activity.
Zandi’s data analysis found that the top 10% of income earners accounted for 50% of consumer spending in the second quarter of 2025.
During an earnings conference call last month, Best Buy CEO Corie Barry said the top 40% of all U.S. consumers account for two-thirds of total consumption, according to an Associated Press report.
The other 60% are focused on getting the best deals and are more reliant on a healthy job market, Barry said.
“One of the things we’re watching closely is how employment continues to evolve, particularly for this cohort of people who are increasingly living paycheck to paycheck,” Barry added.
Much of the growth in U.S. stock market value over the past year, and subsequent income gains for households with stock holdings, has been driven by investor enthusiasm for companies engaged in the development of artificial intelligence. While these companies are investing hundreds of billions of dollars in building AI infrastructure, such as data centers and advanced AI-based software platforms, Atwater stressed that the massive infusion of capital has not yet reached the level of the working class.
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“What we see at the top is an economy that is sort of self-sustaining … between the stock market and the experience of the rich,” Atwater told AP. “And it’s largely confined. It’s not sinking to the bottom.”
Christian vom Lehn, an economics professor at BYU, notes that AI’s outsized impact on investment markets raises questions about sustainability.
“There are rapid advances in AI technology … and real economic gains are being made here,” Vom Lehn said in an interview with Deseret News. But the economist stressed that “there is a level of enthusiasm that could be ahead of reality.”
“It will take some time to determine to what extent the boom is based on the real economy or on irrationality,” Vom Lehn said.
If the AI investment industry were to experience a market correction and the stock values of companies heavily invested in technology fall, it could alter the current upward trajectory of companies at the top of the K-shaped economy.
Alternatively, the conditions in which the majority of Americans face the challenges inherent to the lower K arm find themselves could be evolving toward a better economic situation.
Dean points out that even in today’s somewhat gloomy national economic climate, there are bright spots.
“There are many opportunities for increased wages and job creation in areas that require technical training…and in those areas there are many job opportunities,” Dean said.
Dean also likes Utah’s outlook amid a K-shaped economy, noting that while overall growth in the state has moderated, recent state-level data shows that sales tax revenues increased about 5 percent in October and income tax withholding figures, which reflect both job and wage growth, increased about 3 percent.
National Economist Zandi visited the Beehive State in October as part of the University of Utah’s Societal Impact Seminar and spoke about Utah’s economic environment at a press conference during his visit.
He said Utah’s fiscal vitality is largely due to the state’s diverse economic portfolio and highlighted other factors that strengthen Utah’s unique resilience to external impacts.
“The one thing that strikes me as a visitor to Utah is the political cohesion as well as the social fabric that is very different from where I come from,” he said. “I live in Philadelphia. Pennsylvania has a much more fragmented political process, which makes it much more difficult to solve very pressing problems. But Utah is in an enviable position when it comes to this kind of social cohesion. I think it’s very important.”
