US Economic Divergence Remains 'Firmly Intact' Amid K-Shaped Recovery, Moody's Economist Warns

Mark Zandi, chief economist at Moody’s Analytics, has warned that America’s economic divergence remains ‘firmly intact’, with newly updated data showing the bottom 80% of earners losing ground against inflation while top earners dominate national consumption. Zandi’s estimates reveal that households in the top 20% of the income distribution — those earning over $175,000 annually — now account for nearly 60% of total spending. Their personal outlays surged 6.5% over the past year, well above the 2.7% CPI inflation rate. By contrast, spending among the bottom 80% grew just 2.6%, meaning most consumers fell short of inflation. “The financial system is becoming increasingly unequal, leaving most Americans upset with their financial situations,” Zandi said.

‘The K-shaped economy remains firmly intact. That’s according to our updated estimate of personal outlays by income group for 2026q1, based on the Fed’s Financial Accounts and Survey of Consumer Finance. Americans in the top 20% of the income distribution (those who earn over $175k annually) account for an astounding nearly 60% of outlays.The top 20% is driving spending and the economy. Their outlays increased by 6.5% over the past year and by 7.4% per annum over the past 3 years, well above CPI inflation of 2.7% and 2.9%, respectively. But outlays by those in the bottom 80% fell short of inflation. No wonder most Americans are upset with their financial situations and the broader economy.ICYMI, our estimates have come under some criticism. Fair enough. While we use a methodology devised by Fed researchers long ago, even with the modest adjustments we have made, these estimates may overstate the case. But they make an overwhelming case that the economy is K-shaped and becoming increasingly so.’ Zandi’s warning highlights the growing imbalance in consumption and wealth, with affluent households driving economic growth while the majority struggle to keep pace with rising costs.

A lopsided economic background

The data underscores a widening political rift over wealth distribution. Rep. Ro Khanna (D-CA) amplified these frustrations, calling the system “unfair and lopsided.” He noted that nearly 80% of Americans now believe the American dream is dead, while billionaires hold outsized wealth. Khanna urged a shift toward “patriotic capitalism” to protect the working class, pointing out that essential workers such as nurses, teachers, and firefighters can no longer afford to buy homes. He warned that younger generations feel “forsaken” by a system where billionaire influence skews public laws, leaving the bottom 80% squeezed out.