Thank God for the upper-half of the “K.”

I mean, not in the sense that a so-called “K-shaped” economy’s a good thing. It most assuredly isn’t.

Contrary to some interpretations, and depending on how you “draw” the “K,” it argues against the idea of a meritocracy. No, extraordinary people aren’t the norm (that’s why they’re “extraordinary”), but the concentration of wealth in America in the 2020s suggests a relative handful of people are so meritorious as to deserve substantially all the nation’s material wealth, a contention absurd on its face.

In a real meritocracy, where “merit” was defined in a more comprehensive way than American capitalism tends to delineate it, we’d almost surely have a more egalitarian distribution of resources.

The issue — and this hasn’t come back to bite America yet economically, but it certainly has sociopolitically — is that in a setup where the overall growth impulse depends heavily on consumption, and consumption increasingly depends on the wealth effect from financial assets owned by the “meritorious,” a steep decline in the value of those assets, to say nothing of a collapse, becomes a total non-starter. Because everyday people, being impecunious, have no capacity to backstop the system which pauperized them.

That’s the context for falling real wage growth, which I’ve mentioned several times this week in the wake of April’s CPI report.

As the figure shows, last month was the first time real average hourly earnings growth was negative since April of 2023.

If headline inflation ebbs quickly this won’t be a death knell. But if CPI stays elevated (MoM prints like Tuesday’s would push the YoY pace near 5% by the midterms), it could be a problem. For stocks, yes, but also for the people whose wages are being eroded.

The figure below plots the same real earnings growth calculation with the saving rate.

The combination of dwindling savings and negative earnings growth isn’t a good one.

“While consumption held up [in 2023] despite years of post-pandemic sticky inflation and a tariff shock, our concern is that consumers are now on far less stable footing than they were [then],” BMO’s Ian Lyngen warned, adding that the annual rate of real disposable personal income is also at a three-year low.

“The departure point for US consumers to absorb the oil shock is less encouraging than it was for the last couple of inflationary shocks,” he remarked, in the same note.

Coming full circle, stocks better not fall. Or if they do, not by too much. Because Main Street’s likely tapped out, exhausted as they surely are from “too much winning.”