By Teresa Rivas
Forget a tale of two cities. America is starting to look like a tale of two shoppers.
Much has been written about the K-shaped economy in the past few years, in which the wealthiest households -- the 'top' of the K -- keep heading higher, in contrast to everyone else. However, the spike in gas prices since the beginning of the Iran war in late February appears to have exacerbated and accelerated the trend. While poorer consumers struggle to budget for higher energy prices, their higher-income peers feel bolstered by stock market gains.
That pattern has been evident in recent data and helps partially explain why the State Street SPDR S&P Retail exchange-traded fund and State Street Consumer Discretionary Select Sector SPDR ETF are down year to date while the broader market has rallied. Wages aren't rising as much as they need to even as the Nasdaq Composite and S&P 500 have reached multiple new record highs this year. Consumer sentiment remains mired near all-time lows, even as retail sales have risen and spending is still high. Lower-income Americans are forced to pay more for essentials, but mostly the wealthiest sliver of consumers -- who don't feel the need to slow down -- now account for the lion's share of spending.
Previous consumer sentiment polling has shown that a majority of Americans are worried about inflation and its impact on both their finances and the broader economy. Yet recent survey work from Jefferies shows how quickly the impact of higher gas prices is being felt. Analysts, including Blake Anderson, found that the K-shaped sentiment had been easing, from around Christmas through February, just before the start of the war. By contrast, since the start of the conflict at the end of February, "the 'K' has retraced approximately half the move as sentiment for the higher income cohort has stayed relatively flattish and lower income sentiment has dropped to roughly 31-month lows."
That decline among lower-income consumers comes as inflation recently climbed to a three-year high, driven in part by rising gas prices.
It's worth noting that sentiment as a whole is down, falling to a reading of 88 in the Jefferies poll, down from 94 at the end of February and 100 in the year-ago period. Anderson notes the decline is broad-based, pulled down by all the factors measured -- current conditions, expectations for personal finances, buying conditions, and business conditions -- with the latter two under the most pressure since the last update.
Nonetheless, as the K-shaped data show, sentiment isn't entirely uniform. "Across the cohorts we track, nearly all were lower, with two fascinating exceptions," he writes. "First, the most educated consumers (Master's Degree+) are up about 7pts from the March low and now reporting sentiment in line with February-end levels. Second, a similar, but less pronounced, pattern is observed among higher-income consumers, who have posted a five-point surge from the March low, possibly due to better securities market conditions."
So far, the most well-heeled Americans have continued to spend, to the point that they are able to offset the pullback from nearly everyone else. That may seem like a precarious position for an economy that relies on consumer spending for two-thirds of its gross domestic product, but wealthier households have been driving spending growth for several years now and show no signs of slowing -- yet.
Write to Teresa Rivas at teresa.rivas@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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May 20, 2026 14:26 ET (18:26 GMT)
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