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There's a puzzling dynamic emerging in the American economy.

On one hand, the S&P 500 and Nasdaq continue to set record highs and economic growth data is seemingly robust.

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But on the other hand, consumer confidence has hit its lowest point in a decade, according to The University of Michigan's monthly survey (1). Meanwhile, 42 million Americans have to settle for partial and delayed food aid benefits in November after the Supplemental Nutrition Assistance Program was paused due to the ongoing government shutdown (2).

So, is the U.S. economy thriving, or struggling? The answer, according to one expert, is both.

Heather Long, chief economist at Navy Federal Credit Union, has described the current environment as a“K-shaped economy (3).” Put simply, high-earning households are doing so well that their growth is offsetting the decline of mid- and low-income households.

Here's a closer look at how this K-shaped economy is skewing the data.

The K-shaped economy explained

As Long explained to NPR, her data shows that the top 20% - the high-earning American households - are thriving because they have seen immense gains in their stock portfolios and home values in recent years. And as consumers start to feel wealthier due to an increase in the value of their assets, their spending tends to increase.

This spending pattern based on asset appreciation is sometimes referred to as the“wealth effect (4).”

The impact of this is clearly visible in recent consumption data. In the second quarter of 2025, Americans in the top 10% of income earners were responsible for nearly half (49.2%) of all consumption across the country, according to Moody's Analytics (5).

“The top 20% of American earners are doing pretty well,” said Long.“The stock market's up. Their home values have gone way up in the last few years. They are not that concerned about these tariffs because they have the cash on hand to be able to absorb any price increases.”

But most ordinary American households don't have multimillion-dollar properties or stock portfolios they can simply tap into in order to fund their lifestyle. With this in mind, Long argues these households are bearing much of the brunt of the ongoing trade war and its impact on the cost of living in the U.S.

“It's a really different situation for the bottom 80%,” said Long.“They don't have a lot of extra room to absorb an extra potentially $2,000 in the next year in higher tariff costs.”

This K-shaped dynamic isn't just impacting households, as it's also playing out in corporate America.

The top 10 largest stocks in the S&P 500 are responsible for roughly 70% of the stock market index's recent profits, according to Russell Investments (6). Meanwhile, investments related to artificial intelligence accounted for 92% of U.S. GDP growth in the first half of 2025, according to Harvard economist Jason Furman (7).

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How the bottom 80% can build wealth

Unfortunately, there's no secret sauce that can vault those in the bottom 80% into the top 20%. This economic environment seems to be geared toward making the rich even richer, but that doesn't mean you can't build wealth and accumulate some of the assets that fuel the top 20%.

For wealthy Americans, stocks and real estate have inflated in tandem over time, and that's proven to be a very successful recipe for building wealth. And while real estate is an asset that many in the top 20% own, purchasing property is prohibitively expensive these days.

With this in mind, buying property is not an option for many younger Americans, but that doesn't mean you can't invest in real estate. By investing in something like a real estate investment trust, you could gain exposure to the same growth asset that many wealthy American households rely on.

If investing in real estate doesn't interest you, investing in the stock market is still an option. This allows anyone with any amount of investable funds to participate, using compounding interest and time to build wealth.

Investing in a low-cost index fund is a great way to start, and an employer-sponsored 401(k) with a matching contribution from your employer is also a great way to save money and build wealth for your retirement.

It may take time to crack the top 20%, but a long-haul approach to investing is a tried and true method for building wealth. The power of compounding over time can give you a chance to enter the top 20%, though getting there may not be quick or easy.

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Article Sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guideline.

NBC News (1 ); Politico (2 ); NPR (3 ); National Bureau of Economic Research (4 ); Morning Brew (5 ); Russell Investments (6 ); Decrypt Media (7 )

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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