When we talk about (complain about) America’s so-called “K-shaped” economy in the post-pandemic era, we tend to focus on the distribution of financial assets, household debt dynamics and inflation vulnerability.

Long story short, the richer you are, you tend to have more financial assets, be less exposed to variable-rate debt and less sensitive to price increases for food, energy and shelter.

The poorer you are, the fewer financial assets you own (and that assumes you own any at all), the more exposed you are to rising rates on floating-rate financing and the more sensitive you are to rising prices on food, energy and shelter because, as a share of your monthly income, you spend far more on necessities than the rich.

This is intuitive, but it often goes under-appreciated: A lot of that’s multiplicative and self-perpetuating. So, for example, if grocery prices and rent rise 20%, food insecure renters have even less disposable income and are therefore i) even less likely to have savings which benefit from rising rates and ii) even more likely to avail themselves of credit which gets more expensive the higher rates go.

On the flip side, rich households aren’t affected by rent inflation (because they own their homes either outright or by way of fixed-rate loans) and probably won’t notice higher grocery prices because i) spending on food is negligible as a share of their monthly income and ii) that monthly income will anyway be bolstered by higher rates on cash savings. And that’s to say nothing of unrealized (and therefore untaxed) investment gains and rising property values.

If there was one saving grace for the American Everyman in the post-pandemic world, it was that wage gains for everyday people were for a time historically robust, which in this case is to say enormous. During the reopening boom, demand for low- and relatively low-skilled labor outstripped supply more than twice over on some metrics, creating intense competition for scarce workers with the effect of driving wage growth into the stratosphere.

But those gains proved fleeting and unsustainable. (Insult to injury for Main Street was the contention that in order for inflation to come down, their wage growth had to moderate — they were effectively blamed for perpetuating the very inflation that was suffocating everyday people.)

Have a look at the figure below which uses data from the Atlanta Fed’s wage growth tracker.

Annual pay gains for the lowest-paid earners in America are now running just 3.6%, barely better than inflation. By contrast, the highest earners are still enjoying 4.6% annual wage growth, comfortably ahead of annual price increases.

Do note: Wage growth for the lowest quartile of earners is now the slowest since 2016, while pay gains for the highest quartile are still running near the fastest on record excluding 2023/2024 and remain two full percentage points above pre-pandemic levels.

“Much has been said about ever-higher stock valuations and the obvious flow-through to the wealth effect [but] the bifurcation of the consumer is not just a story of earnings in the equity market,” BMO’s Ian Lyngen remarked.

“Interestingly, the average pace of wage growth for the lowest quartile of earners was previously faster than that of the highest quartile of earners for nearly ten consecutive years [and] it was only in October 2024 that the highest quartile exceeded the lowest,” Lyngen went on. “Their paths have increasingly diverged ever since.”