March 18, 2026 | Free Virtual Event
Explore the health of the American consumer.
Retail sales grew robustly in 2025, outperforming expectations — including our own. Consumer spending has been one of the brights spots in this economy, but when you dig under the surface, not all segments of consumers are performing equally.
There has been much talk in the media about a K-shaped economy, but what does that really mean? A K-shaped economy describes a scenario where different income groups grow at drastically different rates, with their relative performance diverging like the arms of the letter “K.”
To understand how real this phenomenon is, we worked with our partners Pyxis by Bain & Company and Affinity Solutions to examine credit and debit card data and look for some clues. The data was broken down into spending deciles, which closely map to income levels. As illustrated in the chart below, you can see that there is a very real difference in spending growth in discretionary goods when you break it out by consumer spending levels.
What’s really notable is that, even though the bottom seven deciles saw negative growth in spending on discretionary items on a year-over-year basis, the grand total for all incomes was actually positive for the year. That’s because the top 20% of spenders in this category accounted for over 60% of total spending. Essentially, strong spending in higher income segments is masking weakness among lower income segments.
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We performed a similar analysis for a range of retail sectors. For many of these sectors, the outlines of a K shape are visible. However, this is clearly not a simple bifurcation as a K shape implies. We see much more stratification across income groups. And it’s also worth noting that this stratification isn’t uniform across all sectors. Some sectors have seen growth across the board. Others have seen declines across the board.
What is clear is that across lower- to middle-income households, growth in spending has begun to slow. However, top-line spending remains robust, and some sectors have even managed to retain or grow their share across income groups.
We expect to see continued growth at a top-line level for retail into 2026, but it is clear that not all segments of the consumer will be driving this growth.
More data on spending by income decile can be viewed in the slides below.
