US economy likely to stay resilient despite uneven recovery, but K-Shaped growth remains a key risk: BofA Securities
New Delhi, June 30
The US economy is expected to maintain its growth momentum through the remainder of 2026, supported by resilient consumer spending and an improving labour market. However, the recovery is becoming increasingly uneven, with higher-income households continuing to drive economic activity while lower-income consumers grapple with rising living costs, weaker labour market conditions and elevated borrowing costs, according to a research report by BofA Securities.
BofA Securities said the US economy has evolved into a "K-shaped" economy, where the financial health and spending patterns of higher-income households are masking the underlying stress faced by lower-income consumers. The report estimates that the top 10 per cent of households account for nearly 23 per cent of total consumer spending, compared with just 4 per cent for the bottom 10 per cent, making aggregate demand increasingly dependent on wealthier consumers.
The brokerage noted that this divergence helps explain why consumer spending has remained resilient despite a slowdown in hiring and weaker consumer sentiment over the past year. Strong equity markets, healthier household balance sheets and recent tax relief have enabled affluent households to sustain discretionary spending, particularly on services, thereby supporting broader economic activity.
BofA expects the labour market to gradually stabilize as hiring broadens beyond healthcare into sectors such as manufacturing, construction and leisure. Easing tariff uncertainty, resilient financial markets and a more contained oil price environment could reinforce this trend, helping narrow the gap between income groups if sustained.
However, the report cautions that the economy remains vulnerable to a sharp correction in equity markets or renewed geopolitical shocks that could weaken higher-income spending. Since consumer demand has become increasingly concentrated among affluent households, any significant erosion in wealth effects could quickly translate into slower consumption and weaker employment growth.
On the policy front, BofA argues that the US Federal Reserve is unlikely to respond aggressively to the widening income divide. Instead, it expects policymakers to continue their gradual approach to interest rates, balancing resilient aggregate demand against pockets of weakness in the labour market. While targeted fiscal measures could provide relief to lower-income households, BofA notes that elevated budget deficits, inflation risks and limited fiscal space will constrain the government's ability to narrow the growing economic divide.
The report suggests the US economy remains on a stable footing, but its durability will increasingly depend on whether the ongoing K-shaped recovery broadens beyond higher-income consumers into the wider economy.
— ANI
Reader Comments
As someone who follows global economics, this is troubling. The fact that top 10% accounts for 23% of spending while bottom 10% is just 4% shows systemic inequality. But I'm skeptical about BofA's optimism—if the labor market only stabilizes with tariff relief and stable oil prices, that's a lot of 'ifs'. The US needs stronger safety nets.
Typical Wall Street report—talk about 'resilient' but ignore that it's only for the rich. Reminds me of our own HNI-heavy recovery in India. K-shaped growth is just a fancy term for 'the rich get richer'. And saying Fed won't react? That's dangerous. Hope common sense prevails.
K-shaped recovery is real—I see it in my neighborhood. Tech workers are thriving but service workers are barely getting by. The report's point about equity market correction is valid: if stocks drop, that 23% spending dries up fast. Fiscal space is limited everywhere, even in US.
The report is right to flag the concentration risk. If the rich sneeze, the US economy catches a cold. But I'd add that healthcare and education costs are crushing lower-income Americans, something BofA glosses over. Targeted fiscal relief is needed, but with deficits, it's tough.
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