The K-shaped economic divide might be narrowing

For years, the economy has looked K-shaped. There's new evidence that some of that divide is beginning to narrow.

The wage-growth gap between lower- and middle-income workers has disappeared, with pay gains among lower-income workers nearly matching those of their higher-income counterparts.

Spending growth among lower- and higher-income households is the most similar in years.

Why it matters: A resilient labor market is chipping away at one dimension of the K-shaped economy, even as the wealth divide remains firmly intact.

Source: Bank of America Institute

By the numbers: Bank of America Institute, drawing on anonymized customer deposit account data, estimates that lower-income households saw after-tax wage growth accelerate to 4.1% in June, up from 2.9% in May.

That compared with 3.4% for middle-income households and 4.2% for higher-income households, the narrowest divide between low-income workers and their higher-earning counterparts in years.

PNC, using its own customer data, says the spending gap between lower- and higher-income households is the smallest in three years.

The firm's senior economist previewed the June data on X, noting that the spending gap, excluding spending on gasoline, narrowed even further last month.

The intrigue: Bank of America attributes the wage convergence to stronger hiring and job-switching among lower-income workers, while PNC says healthier labor market fundamentals are increasingly underpinning consumer spending.

BofA cautions that part of the acceleration may be mechanical rather than economic, if lower- and middle-income workers adjusted their tax withholdings to reflect changes under the One Big, Beautiful Bill Act.

The bottom line: The "K" hasn't vanished. Stocks, home equity and other gains still accrue overwhelmingly to affluent households, while lower-income workers have not felt a similar flush of wealth from the housing or stock market booms.