BofA Sees New K-Shaped Economy Trends Emerging in the U.S.
Economic uncertainty continues to shape financial decisions across the United States. While bank account balances remain relatively healthy, new data from Bank of America (BofA) suggests that the current financial cushion may not last much longer.
Rising living costs, lingering inflation concerns, and uneven income growth are creating fresh pressure on many households, raising concerns about where the economy could head during the second half of the year.
Economic Pressures Continue to Build
President Donald Trump’s second term has unfolded against a backdrop of economic challenges. During 2025, a global tariff dispute disrupted international trade and added new costs for consumers. In 2026, tensions involving Iran created additional strain by affecting oil supplies, disrupting trade routes through the Strait of Hormuz, and pushing gasoline prices higher.
Although fuel costs have eased recently, many Americans remain concerned about everyday expenses. The University of Michigan’s consumer survey indicated that consumer sentiment declined for a third consecutive month in May.
The rising cost of living remained the leading concern among respondents. Even Republican voters reported their lowest sentiment levels since Trump returned to office, highlighting broad uncertainty across political groups.
Still, consumer sentiment tells only part of the story.
Strong Deposits, Rising Concerns
Instagram | @owchamber | Bank of America deposit data reveals that household bank balances increased across all income brackets early this year.
Bank of America analysts have access to extensive deposit data, offering a closer look at household finances. According to a research note reviewed by TheStreet, bank balances increased across every income bracket during the early months of the year.
Analysts noted that deposits were “boosted partly by larger tax refunds, with the biggest relative increases for lower-income households.”
The numbers reveal notable gains:
1. Lower-income households hold deposit balances nearly 70% above 2019 levels and almost 15% higher than in January 2026.
2. Middle-income households show balances roughly 60% above 2019 and close to 10% higher than January levels.
3. Higher-income households maintain deposits nearly 40% above 2019 levels and less than 5% above January figures.
These increases have helped many families absorb higher costs tied to inflation, fuel prices, and broader economic uncertainty. However, BofA believes this support may prove temporary.
David Tinsley of Bank of America warned, “For younger and lower-income households, these deposits could be drawn down faster this year, reflecting mounting cost pressures.”
He added, “Much will depend on whether the upturn in the labor market and improved lower- and middle-income wage growth we have seen in Bank of America internal data persist through the summer.”
Despite stronger balances, financial stress remains widespread. BofA survey data shows that nearly half of lower-income households describe their financial situation as either “poor” or “terrible.”
Bank of America expects lower fuel costs to provide some relief. Analysts stated that “lower gasoline prices, combined with higher deposits, could be a mild tailwind to narrowing the ‘K’ shape in spending growth.”
While that may support consumer spending in the short term, the broader economic divide remains a concern.
Understanding the K-Shaped Economy
The term “K-shaped economy” describes a recovery in which different groups experience very different outcomes. One segment sees financial gains, while another faces growing hardship.
In practical terms, higher-income households continue to benefit from stronger wealth growth and increased spending power. At the same time, many lower-income workers struggle with rising expenses and slower income growth.
Recent spending patterns highlight this divide. Luxury spending has started to recover after lagging for more than three years following the Covid period. Monthly data through March showed luxury spending rising at a 12% annual pace, driven largely by higher-income consumers.
This improvement reflects stronger financial conditions among wealthier households, even as many families remain focused on basic expenses.
Productivity Boost Fuels Corporate Profits
Pexels | Rising worker productivity is boosting corporate profits but widening the economic divide.
Another factor shaping the K-shaped economy is the growing gap between corporate profits and worker income.
According to Bank of America, productivity has increased steadily since the Covid pandemic. National accounts data points to stronger output per worker, particularly across service industries. These gains have supported higher corporate earnings.
At the same time, labor income has declined as a share of U.S. gross domestic product (GDP).
BofA Securities explained, “For now, higher profits relative to wages are yet another driver of a K-shaped economy, as higher-income consumers tend to be more exposed.”
The firm also noted, “Measured labor productivity (that is, output per hour) continues improving since the end of the pandemic and is mostly concentrated in the services sector rather than manufacturing. Interestingly, real labor income is not growing at the same pace.”
As a result, a larger portion of economic growth is flowing toward businesses rather than workers.
Current deposit levels continue to provide support for many households. Yet Bank of America’s data shows a growing imbalance. Tax refunds and lower fuel prices may offer temporary relief, but rising costs and uneven income growth remain key challenges.
If wage gains slow or labor market conditions weaken, lower-income households could feel the pressure first. Meanwhile, stronger corporate profits and higher-end consumer spending continue to reinforce the economic split that defines a K-shaped recovery. The months ahead may determine whether that divide narrows or becomes even more pronounced.