MICHEL MARTIN, HOST:
There's a divide in how Americans are doing financially. NPR's Stephan Bisaha explains a tool economists are using to explain it - the letter K.
STEPHAN BISAHA, BYLINE: You might think of economists as number nerds, but they're also big on the alphabet.
GREG ACS: Economists love letters. What is the shape of the letter that can describe the economy?
BISAHA: Greg Acs is with the Urban Institute. And to understand why K is in the zeitgeist right now, take a second to picture a K. That one line shooting up and to the right? That represents Americans who are doing great. They're mostly people who are heavily invested in the stock market, and that market is breaking records. And the line shooting down? That's pretty much everyone else.
ACS: The idea behind a K-shaped economy is that growth is unequal.
BISAHA: The K shape is useful because it helps explain these clashing economic stories, like how people feel lousy about this economy but consumer spending is up. That's because spending is being driven by people in that top arm of the K.
ACS: We've had growth, but it's been top-led growth.
BISAHA: Now, Acs says in reality, that bottom line is not actually plummeting. It's more flat. Eric Winograd is the chief economist at the investment firm AllianceBernstein, and he agrees.
ERIC WINOGRAD: I think the K shape is an exaggeration. Most people's wages are beating inflation, and household income is beating inflation. It's just not doing so by very much.
BISAHA: But the gap between the two lines is growing.
WINOGRAD: Absolutely. The gap between the two lines is growing in a massive way.
BISAHA: This K shape is also not new. He says the economy has been split going back some 30 years, and it really widened during the pandemic's recovery.
WINOGRAD: The reason that we're talking about the K-shaped is because the affordability issue makes people feel like they are losing ground.
BISAHA: Affordability. That's not just about inflation, but how people feel about where they are financially. Jane Waldfogel is a professor at Columbia University's School of Social Work. She says the word affordability has gotten so popular this year because it feels so personal.
JANE WALDFOGEL: And the idea that prices in the abstract are rising or there's inflation is very different from, I can't afford housing. I can't afford to buy the food that I used to buy. I can't afford child care.
BISAHA: And she says this split in how people feel about affordability is really where the K shape is most accurate. Low- and middle-income families feel affordability declining. And the top earners - they're feeling good.
WALDFOGEL: The sort of sense that the sky's the limit.
BISAHA: Economists likely won't have to go searching for a new letter in 2026. The K-shaped economy is expected to stick around.
Stephan Bisaha, NPR News.
(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.