New ‘E-shaped’ economy shows middle class rising while poor fall further behind

Bank of America sees a new divide

For about a year, economists described the U.S. economy as “K-shaped,” with the wealthy rising and everyone else falling behind. That picture just got more complicated.

A February 2026 Bank of America report says the middle class is now separating from lower-income Americans, creating a third tier. Fortune coined the term “E-shaped” economy to describe the three-way split.

The six economists behind the report warned that gaps in spending and wage growth are getting worse.

Spending growth depends on your income

The numbers paint a clear picture. In January 2026, higher-income households saw spending grow about 2.5% compared to a year earlier.

Middle-income households managed just 1%. Lower-income households barely moved at 0.3%.

That gap between the top earners and everyone else hit its widest point since mid-2022.

Bank of America pulled these figures from its own credit and debit card data, giving a real-time look at how Americans actually spend.

Wages tell the same story

Paychecks are being split along the same lines. Higher-income households saw after-tax wages grow about 3.7% year over year in January 2026, up from 3.3% in December. Middle-income families?

Their wages barely moved, creeping from about 1.5% to just under 1.6%. That gap between higher- and middle-income wage growth hit its largest point in nearly five years.

The wealthy are gaining speed while everyone else runs in place.

The wealth gap started growing decades ago

This divide did not appear overnight. The Federal Reserve started tracking how wealth spreads across households in 1989.

By the third quarter of 2010, total U.S. household wealth sat at about $60.76 trillion. The top 0.1% held roughly $6.53 trillion of that.

The bottom 50% of Americans shared just $330 billion. The gap was already enormous back then, but what happened next made it look small.

The richest 1% now hold record wealth

By the third quarter of 2025, the top 1% held about 31.7% of all U.S. wealth, the highest share on record since tracking began in 1989.

That comes out to roughly $55 trillion in assets, about equal to what the bottom 90% of Americans hold combined. The bottom half did see their wealth grow to about $4.25 trillion, up sharply from $330 billion in 2010.

But the top 0.1% grew to roughly $24.89 trillion, nearly six times what the bottom half holds.

Household debt just hit a record

Americans owe more than ever. Total U.S. household debt reached about $18.8 trillion in the fourth quarter of 2025, climbing $191 billion from the prior quarter.

Mortgages make up the biggest chunk at roughly $13.17 trillion. Credit card debt rose by about $44 billion to $1.28 trillion.

Auto loans climbed to about $1.66 trillion, and student loan debt sat at the same figure. The weight of that debt is not falling evenly.

Delinquencies hit a 10-year high

More Americans are falling behind on their bills. The overall delinquency rate hit about 4.8% of outstanding debt in the fourth quarter of 2025, the highest level in nearly a decade, according to the New York Fed.

Mortgage delinquencies sit near normal levels overall, but the trouble clusters in lower-income areas and places where home prices are dropping.

Credit card and auto loan delinquency rates appear to have leveled off, though they remain elevated.

Some regions feel the pain more

The housing trouble is not spread evenly across the country.

The New York Fed found that counties where unemployment rose more than 1.6 percentage points saw the steepest jump in mortgage delinquencies.

Areas with falling home prices, like parts of Florida’s Gulf Coast, are watching more borrowers fall behind. About two-thirds of all U.S. counties have seen unemployment rise since the national low of 3.4% in April 2023.

Homeowners in those areas have less equity to cushion financial shocks.

Families are adjusting how they spend

Americans are not just sitting still. Bank of America’s data shows more households now pay off their full credit card balance each month compared to 2019, and that trend holds across all income levels.

Lower-income shoppers have shifted to value grocery stores over premium ones, a pattern Bank of America called the “trading-down” phenomenon.

Wage growth and lower gas prices have helped offset some inflation, boosting bank balances. But those gains only go so far.

Strong GDP numbers may be misleading

The big economic numbers look solid on the surface.

But Ernst & Young Chief Economist Gregory Daco described the U.S. economy as “polarized,” not just K-shaped.

He said the divide runs between income groups, large and small businesses, and companies focused on artificial intelligence versus those that are not.

Daco warned that strong headline GDP numbers mask weakness felt by middle- and lower-income families. Three pillars keep the economy afloat: AI-fueled growth, rising asset prices, and wealthy consumers.

Middle-income families feel the squeeze

The economy’s health leans heavily on wealthy consumers continuing to spend.

For the bottom 80% of earners, spending has roughly kept pace with inflation since the pandemic but has not beaten it.

Middle-class families face higher prices, modest wage growth, and a widening gap with wealthier Americans. Lower-income Americans face the sharpest pressure, with rising delinquencies and nearly flat spending growth.

The three-tier split means that fixes that help one group may not reach the others.

Economists see no quick fix ahead

Most economists expect solid overall GDP growth in 2026.

But they caution that less affluent consumers will keep facing rising prices and a cooling job market. The Federal Reserve faces a tough balancing act between controlling inflation and supporting workers.

The E-shaped pattern suggests the old divide between rich and poor has become something more layered.

How long middle-income Americans can hold their ground between the wealthy above and the struggling below remains an open question.

This article was created with AI assistance and human editing.

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