New data from the Federal Reserve Bank of New York indicates that higher-income Americans and those with college degrees have increased their spending more rapidly over the past three years compared to other consumers. This trend suggests widening economic inequality and may contribute to growing economic pessimism.
In the final three months of last year, lower-income and rural households faced higher inflation than higher-income households. The spending data specifically focuses on goods, excluding automobiles, and does not account for spending by higher-income households on services such as travel, restaurants, and entertainment.
The "K-Shaped" Economy Explained
These findings support the concept of a "K-shaped" economy, where upper-income Americans drive a disproportionate share of consumption, which is a primary economic driver, while lower-income households experience fewer gains.
Poorer households often encounter higher inflation because a greater portion of their spending is allocated to essential goods and services, like housing, groceries, and utilities, which have seen significant price increases since the pandemic.
Income-Based Spending Trends
The New York Fed's data shows clear distinctions in spending growth by income level. Since 2023:
- Households with incomes of $125,000 and higher have boosted their inflation-adjusted spending by 2.3%.
- Middle-income households, earning between $40,000 and $125,000, increased their spending by 1.6%.
- Households earning below $40,000 saw their spending rise by just 0.9%.
Understanding the Data
These figures are an addition to the New York Fed’s economic heterogeneity indicators, a series of data sets designed to track variations in the economy by geographic region, demographic, and income groups. The goal is to better understand how different groups are faring, a trend that can be obscured by nationwide averages.
The figures are derived from a group of 200,000 consumers tracked by the analytics firm Numerator. The New York Fed reported that this data closely tracks monthly retail sales released by the government.
Evolving Economic Landscape (2021-2025)
The report underscores a pattern that has emerged since the pandemic. Lower-income households fared better in 2021 and 2022 when companies were actively hiring, and the government provided economic stimulus. However, starting in early 2023, hiring slowed, and sharp gains in the stock market primarily fueled spending increases in wealthier households.
The Education Divide
The division is also apparent when viewed through the lens of education. In 2023 and most of 2024, inflation-adjusted spending by non-college households fell below its January 2023 level, only regaining that level in November 2024. In contrast, households with a college graduate had by then boosted their spending by 4%.
The New York Fed noted that college-educated households continued to spend at a rapid pace in 2025, even as hiring slowed and job cuts occurred in white-collar industries such as high tech, government, and marketing.
Rajashri Chakrabarti, an economic research advisor at the New York Fed, and three colleagues wrote that the difference in retail spending trends between college graduates and non-graduates is consistent with the story of a "K-shaped economy."
Broader Context: Echoes from Other Research
These findings echo other recent research, including a November paper by the Federal Reserve Bank of Dallas. The Dallas Fed found modest increases in consumption and income inequality over the past three decades. The wealthiest one-fifth of Americans accounted for approximately 54% of earnings from 1990-1999, a figure that rose to 60% in the 2020-2025 period. The proportion of spending by the richest one-fifth also increased from 53% to 57% between these two periods, the Dallas Fed concluded.