The American economy in 2026 is increasingly becoming two economies, and new data from Bank of America paints the clearest picture yet of this deepening divide. The bank's latest analysis shows that consumer spending among lower-income Americans has flatlined while their higher-income counterparts continue to spend at robust levels—a bifurcation that's reshaping retail, real estate, and the broader economic landscape.

The Data Doesn't Lie

According to the Bank of America Institute's analysis of aggregated customer data, the spending divergence between income groups has reached levels not seen in a decade. The numbers tell a troubling story:

  • Wage growth disparity: Higher-income workers are seeing wage growth of approximately 4 percent, while lower-income workers are experiencing growth of just 1.4 percent—the largest gap in roughly ten years of bank data.
  • Spending patterns: Lower-income consumer spending shows "little growth" compared to sustained spending among higher-income households.
  • Equity wealth effect: The spending gap has been driven not just by wages but by equity market gains that disproportionately benefit wealthier Americans.

What's Driving the Divide

Several interconnected factors have converged to create this K-shaped economy, where the fortunes of different income groups are moving in opposite directions:

Asset price appreciation: Stock market gains and home price increases have primarily benefited Americans who already owned these assets. The S&P 500's record-setting performance in 2025 and early 2026 has padded the wealth of upper-income households while doing little for those living paycheck to paycheck.

Inflation's uneven bite: While headline inflation has moderated to 2.7 percent, essentials like food, housing, and healthcare—which consume a larger share of lower-income budgets—have remained persistently elevated. The result is a squeeze on discretionary spending for those least able to absorb it.

Credit stress: Lower-income consumers have increasingly relied on credit cards and Buy Now, Pay Later services to maintain spending, but this strategy is reaching its limits. Delinquencies are rising, and lenders are tightening standards.

The Retail Implications

Retailers are already adapting to this bifurcated consumer landscape. The 2025 holiday season illustrated the divide perfectly: while nominal retail sales grew 4.1 percent year-over-year, real unit volume growth was a more modest 2.2 percent once adjusted for price increases.

"The bifurcation of the American consumer has reached a tipping point. The divergence between high-income resilience and low-income strain is no longer just a trend; it is a structural reality of the 2026 market."

— PitchBook 2026 Economic Outlook

Value retailers like Dollar General and Dollar Tree are reporting unexpected success attracting higher-income shoppers who are trading down, while mid-market retailers find themselves in a no-man's land—too expensive for struggling consumers, not premium enough for affluent ones.

What the Economists Are Saying

Moody's Ratings expects real consumer spending growth to decline to approximately 1.5 percent in 2026, down from the 2.5 to 3 percent annual growth seen in 2023 and 2024. Morningstar forecasts consumption growth easing to 1.9 percent in 2026 and 1.8 percent in 2027.

Consumer spending accounts for roughly two-thirds of U.S. economic activity, making the health of the American consumer critical to overall growth. A prolonged K-shaped pattern could constrain GDP growth even as headline numbers appear healthy.

Consumer Confidence Tells the Story

The Conference Board's latest consumer confidence data reinforces the bifurcation narrative. The Present Situation Index plummeted by 9.5 points to 116.8 in December, while the Expectations Index has tracked below 80—the recession warning threshold—for 11 consecutive months.

McKinsey's ConsumerWise survey adds additional color: 43 percent of consumers now rank inflation as their top financial concern, while 29 percent cite tariffs as a major factor shaping their spending decisions. More than 60 percent of Americans say they have already changed or plan to change their buying habits in response to higher costs.

Investment Implications

For investors, the K-shaped economy creates clear winners and losers:

  • Winners: Luxury goods companies, premium brands, discount retailers, and companies serving affluent consumers.
  • Losers: Mid-market retailers, consumer discretionary companies dependent on broad-based spending, and businesses with heavy exposure to lower-income demographics.
  • Watch list: Financial services companies with significant credit card and consumer lending exposure as delinquencies rise.

The Path Forward

Breaking the K-shaped pattern will require either significant wage growth at the lower end of the income spectrum, a meaningful decline in essential costs, or some combination of both. Neither appears imminent given current economic conditions and policy trajectories.

For now, America's two-track economy appears set to persist, with profound implications for businesses, investors, and policymakers trying to navigate an increasingly bifurcated consumer landscape.