MW What's an 'E-shaped' economy - and where do you fit in it?
By Weston Blasi
The middle class is at the center of a shape-changing U.S. economy. Here's what you need to know.
What's the shape of the U.S. economy right now? It's an "E," apparently.
Forget the K-shaped economy. The growing gap between the upper, middle and lower classes suggests we're in what's being called an E-shaped economy - which could spell trouble ahead.
Since 2020, many financial professionals have described the U.S. as having a K-shaped economy - one that featured a growing divide between the thriving wealthy and all other social classes declining, with the diverging financial paths resembling the letter "K."
But now some economists and executives are calling attention a new alphabetical form, with Macy's (M) CEO Tony Spring saying "the K- or E-shaped economy is real" in a recent Bloomberg interview. The term is gaining traction on platforms including TikTok and Reddit (RDDT), and "what is an E-shaped economy" also recently started spiking as a breakout Google search trend.
"We are in a completely new era where the economy is shaped like an 'E,' " as one TikTok user posted.
So what exactly is it? The E-shaped economy - which features three tiers instead of two - describes an economic stratification in which high earners are still spending freely, but the middle class is treading water and stretching its funds, and lower-income households are struggling.
'The big difference between the K shape and the E shape is the health of the middle class.'Heather Long, Navy Federal Credit Union
"The big difference between the K shape and the E shape is the health of the middle class," Heather Long, chief economist at Navy Federal Credit Union, told MarketWatch.
Because consumer spending drives an estimated 70% of the economy, those behaviors play a large part in driving economic growth. Here's a look at what's going on with each income class in this E-shaped economy.
The upper class
The top rung of the E-shaped economy (often described as the top 10% or top 20% of earners) is a wealthy class that is doing well and driving a lot of economic activity. In 2026, this group continued to spend despite higher prices on things like food and gas, according to the Dallas Fed.
Long, the Navy Federal Credit Union economist, explained that this group of top earners continues to thrive, and the race among credit-card companies to get these customers to sign up for high-fee premium credit cards is a great example of this group's willingness to spend, even amid economic uncertainty.
And the numbers show that the U.S. economy is increasingly dependent on this class to keep on spending.
Data from the Federal Reserve and Moody's Analytics show that the top 10% of U.S. earners now account for more than 45% of consumer spending, up from the 40% they had accounted for since 2020. Over that period, spending has become increasingly concentrated at the top, with the bottom 60% of U.S. households accounting for just 23% of total spending.
Related: U.S. jobs report shows 178,000 workers were hired in March. But hiring boomlet is unlikely to last
High earners tend to do just fine in most economic scenarios. And in recent months several companies have begun bragging about how well they are doing with this top-tier economic class.
"We learned that 60% of our core users are over $100,000 a year in income, in average household income," Chipotle $(CMG)$ CEO Scott Boatwright said when the company reported fourth-quarter earnings in February. "That gives us confidence that we can lean into that group in a more meaningful way - to really drive meaningful transaction performance in the year."
McDonald's $(MCD)$ said something similar - but more on the fast-food giant later.
The middle class
Some data suggest consumers in the U.S. middle class have pulled back in terms of spending - but looking at how they're spending, including what they're spending money on and how they're trying to stretch each dollar, matters just as much.
"The middle class is shifting how they are spending," Long said. "We've seen in our data a pronounced shift to spending at warehouse and discount stores like Costco $(COST)$, Walmart $(WMT)$ and Aldi, migrating away from the Whole Foods-type of experiences."
"The evidence seems to be that the middle class is just getting by," she added.
The gap between spending by the middle and upper classes is growing bigger, data suggest. The Consumer Checkpoint report from Bank of America (BAC) dated Feb. 11 showed that the gap between higher- and middle-income households is at its widest in nearly five years. The report also found that people are adapting to affordability issues by trading down, such as shopping at value-oriented grocers instead of premium stores, similar to what Long described.
Here's a visual representation of how spending has been stratified among economic classes in recent years.
The middle class is stretching every dollar by buying in bulk, or adopting tactics to save on gas, or putting items on credit. Some are cutting back on life's simple pleasures.
"I just passed on a package of Nestle semi-sweet chocolate chips this morning because the bag was $10," one Reddit user wrote in a discussion thread about the E-shaped economy. "It sucks when Sunday morning chocolate chip pancakes for the kiddos all of a sudden ends up in the 'discretionary spending' category of the budget."
"Will be interesting to see how spiking gas prices pull down the two lower legs of the E," another user wrote. "We are middle class and have basically halted all of our discretionary spending."
The bottom
While it may seem like the lowest-income earners in the U.S. are always behind, that's not always necessarily the case.
This group saw really strong wage growth after the COVID pandemic, for example, partially due to increases in service industry compensation. But "they are also the ones who were really hurt by the inflation rise," Kathy Bostjancic, chief economist at Nationwide, told MarketWatch.
Lower-income earners are particularly sensitive to rising costs, and they are increasingly relying on their credit cards to cover groceries, healthcare and utilities, often carrying a balance.
As of early 2026, 56% of credit-card users with annual household incomes under $50,000 carry a balance from month to month, according to Bankrate's 2026 Credit Card Debt Report. In contrast, only 36% of those earning over $100,000 a year do the same. And Americans' unpaid credit-card debt is on the rise, as is use of the buy-now-pay-later option.
The bottom two rungs in the E-shaped economy have significantly cut their discretionary spending - with some even skipping meals, as McDonald's highlighted in its latest earnings report.
"What we see in middle- and low-income consumers is actually a different story," McDonald's CEO Chris Kempczinski told CNBC. "Consumers are under a lot of pressure. In our industry, traffic from lower income is down double digits. And it's because people are either choosing to skip a meal, so we're seeing breakfast, people are actually skipping breakfast, or they're choosing to just eat at home. "
What's next
Economists have long employed an alphabet's worth of shapes to describe the U.S. economy, whether it's an E, K, W, U, L or V. But what are the implications of an E-shaped economy in 2026?
"Some of the short-term impacts we are seeing - Americans are frustrated, consumer sentiment is gloomy or even grim," Long said. "There's a deepening pessimism depending on the data about the American dream or capitalism."
And if this E shape persists, it could create a risky situation for the country. That's because if high-income shoppers scale back their spending, then the other horizontal lines of the "E" - the lower and middle classes - may not have enough spending power to keep the economy afloat.
"An E-shaped economy is heavily dependent on that top 20%," Long said, adding that a bear market or an event that triggers a rethink about spending at the top of the income distribution could mean trouble for the entire economy. "Long term, it's possible it could lead to a recession."
Keep reading: The outlook for the U.S. economy is now a lot worse than just two weeks ago, economists say
-Weston Blasi
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 03, 2026 11:24 ET (15:24 GMT)
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