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- Explaining Our K-Shaped Economy
Explaining Our K-Shaped Economy
The Macro Institute's Weekly Economic Primer
The Macro Institute
December 22, 2025
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Don’t have time to watch the whole video? Here’s 5 Key Takeaways:
🔹 What Is A K-Shaped Economy?: It’s where higher-income Americans are seeing their incomes and wealth rise while lower-income households struggle with weaker income gains and steeper prices.
🔹 Current Economic Data Bears This Out: Consumer confidence is falling while corporate earnings are rising, the Fed is cutting rates while consumers are struggling with affordability, and wage growth is flat for higher-income households while it’s fallen for lower-income households.
🔹 Asset Owners Are Doing Well: Households that own corporate equities and real estate have experienced significant wealth increases via price appreciation since 2019.
🔹 AI Having A Marginal Impact: It’s too early to draw any definitive conclusions, but the adoption of Artificial Intelligence seems to only be exacerbating the problem.
🔹 Why It Could Matter For Markets: Consumption is the lifeblood of the U.S. economy. Any potential slowdown in consumption would have a negative impact on corporate earnings, which would in turn negatively impact the S&P 500.
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The Macro Week Ahead
📆 Last Week’s Data Key Takeaways
🔹 Broad Growth Deceleration: Services PMI slowed and multiple regional Fed surveys (Empire, Philly, KC) weakened, pointing to cooling momentum.
🔹 Labor Market Cooling Continues: November payroll growth was modest and unemployment rose, reinforcing a gradual labor-market softening.
🔹 Inflation Cooling, Signal Noisy: CPI and Core CPI surprised meaningfully lower, but shutdown-related data disruptions reduce confidence in the signal.
🔹 Consumer Slowing at the Margin: Retail sales were flat, suggesting household spending is losing momentum even as sentiment has improved modestly.
🔹 Housing Still Depressed: NAHB builder confidence ticked up slightly, but remains below neutral, highlighting affordability issues and demand constraints.
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