K-shaped economy is fading; premium economy explains why

The popular “K-shaped” description of America’s economy is losing ground. A new framing—“premium economy”—argues that many people are moving up to the nicer, middle-classes perks they can afford, even as homeownership and retirement remain out of reach. That s

New York — For years, “K-shaped” has been the shorthand for a country split into haves and have-nots—on gas, housing, and nearly everything in between. But a growing argument is that the picture doesn’t match what people are actually experiencing.

The war in Iran is cited as one pressure point making the divide harsher for low-income households. which spend the largest portion of their income on gas and necessities. Yet even as that pain lands hardest at the bottom. it’s becoming harder to describe what’s happening in America as a clean K—because more people seem to be “trading up” in the middle.

The new label taking hold is the “premium economy” economy.

It describes a subtle climb: more Americans have moved from cramped. no-frills service in basic “economy” to a premium tier where they can afford nicer flights. better groceries. and fancier experiences. But they still can’t reach the next class—where home ownership and retirement security sit for many as the defining symbols of stability.

That gap shows up in a common feeling among people rising into the upper middle: even as their pay improves. they sense they’re falling behind. The reason is pointed and specific—owning a home has drifted out of reach. Retiring the way the Baby Boomers did also looks less certain. given that their wealth has grown faster than younger generations.

So instead of buying the big ticket milestones that used to anchor middle-class life. many are redirecting rising wages toward smaller. attainable upgrades. The result is a market that punishes companies competing entirely on price—such as Spirit Airlines and Dollar General—while lifting businesses consumers perceive as higher quality. including Walmart and United Airlines.

A simple way the gap shows up is in airline profits. Last year, Delta and United accounted for more than 90% of the airline industry’s profits.

“The consumer is still spending,” retail analyst Simeon Siegel of Guggenheim Partners said. “It’s much easier to label everything as a K-shaped economy.”

There’s also a demographic argument behind the “premium economy” framing. The upper-middle class grew from 10% of families in 1979 to 31% in 2024. Recent research from the American Enterprise Institute defines a family of three earning $133,000 to $400,000 per year as upper-middle class.

At the same time. the share of families classified as poor and lower-middle class also fell over the past five decades. Scott Winship. a senior fellow at the American Enterprise Institute and co-author of the study. said: “The whole distribution has moved up.” He added that this undercuts the idea that there’s hollowing out of the middle class.

Still, the “American dream” of buying a home has faded for many younger generations. Nearly 40% of Americans do not own their home, meaning many missed out on soaring home values after the pandemic. Home prices have since ballooned to five times the average median income, trapping people in place.

With homeownership out of reach, the new members of the upper-middle class are spending on the perks they can afford. Travel, concerts, and other fun activities have replaced home ownership in what’s being called the “premium economy” economy.

Retail sales, too, have been climbing for three consecutive months, supported by a healthy labor market and higher tax refunds. Ameriprise Financial chief market strategist Anthony Saglimbene said in a note to clients last week: “The consumer is still spending and working.” He added that if inflation pressures ease at some point. the “K-shape” in the economy could begin to flatten.

This summer’s travel season is expected to surpass the last two, according to a Bank of America survey. Only roughly 10% of survey respondents are considering canceling their trip over high gas prices.

What’s clear is that the same “upgrade” impulse is also showing up across where people shop and where they stay.

Spirit Airlines shut down its operations in part because many of its customers began paying $30 or $40 more for a little extra legroom, free snacks, and better service at larger carriers like United and Delta.

At the store level, Walmart has peeled off lower-income customers from competitors like Dollar General. The two retailers share customers and have thousands of stores located close to one another. Walmart, however, has upgraded in recent years—cleaning up stores, sharpening prices, and adding speedy curbside pickup and home delivery. That strategy helped it grab market share from Dollar General.

Hotels are joining the trend as well. Hilton expects its “premium economy” hotel brands such as Spark by Hilton to grow in the coming years.

Hilton CEO Chris Nassetta has even predicted that the broader US economy will enter a “C-shaped” phase in the next few years—where consumer spending becomes more evenly balanced across income levels. He tied that shift to lower inflation. lower interest rates. and AI investments that he said will eventually help low and middle-income consumers gain spending power and flatten the K-shape. “You are going to see this convergence.”.

K-shaped economy premium economy upper-middle class home ownership inflation gas prices airline profits Spirit Airlines Dollar General Walmart United Airlines Delta Hilton Spark by Hilton