By CHRISTOPHER RUGABER, AP Economics Writer

WASHINGTON (AP) — From corporate executives to Wall Street analysts to Federal Reserve officials, references to the “K-shaped economy” are rapidly proliferating.

So what does it mean? Simply put, the upper part of the K refers to higher-income Americans seeing their incomes and wealth rise while the bottom part points to lower-income households struggling with weaker income gains and steep prices.

A big reason the term is popping up so often is that it helps explain an unusually muddy and convoluted period for the U.S. economy. Growth appears solid, yet hiring is sluggish and the unemployment rate has ticked up. Overall consumer spending is still rising, but Americans are less confident. AI-related data center construction is soaring while factories are laying off workers and home sales are weak. And the stock market still hovers near record highs even as wage growth is slowing.

It also captures ongoing concerns around affordability, which is much more of a concern for middle and lower-income households. Persistent inflation has received renewed political attention after voter anger over costly rents, groceries, and imported goods helped Democrats win several high-profile elections last month.

“Those at the bottom are living with the cumulative impacts of price inflation,” said Peter Atwater, an economics professor at William & Mary in Virginia. “At the same time, those at the top are benefiting from the cumulative impact of asset inflation.”

Here are some things to know about the K-shaped economy:

Not an L, U or V

Atwater actually popularized the label “K-shaped economy” during the pandemic after seeing it crop up on social media. Other economists were discussing different letters to describe how the COVID recession in 2020 could play out: Would it be a V-shaped recovery, meaning a sharp decline and then rapid bounce-back? Or would it be U-shaped, meaning a more gradual rebound? Or, worse, L-shaped: A recession followed by extended stagnation.

“There was sort of this land-grab for letters,” Atwater said. “To me the letter that made the most sense was K.”

Back then, it captured the differing fortunes between white-collar professionals still employed and working at home while stock prices rose, even as massive layoffs at factories, restaurants, and entertainment venues pushed unemployment to nearly 15%.

Inequality persists

Inequality was somewhat reversed in the aftermath of the pandemic, when businesses offered large raises for blue collar workers as the economy reopened and demand surged. Many companies — restaurants, hotels, entertainment venues — were caught short-staffed and sought to rapidly increase hiring. Lower-income workers saw larger pay gains than higher-paid ones.

In 2023 and 2024, inflation-adjusted wages for the bottom quarter of workers rose at a yearly rate of 3.9%, outpacing the 3.1% gains for the top quarter, according to research by the Federal Reserve Bank of Minneapolis.

“We had that kind of two-year period where the bottom was catching up and that talk of the K-shape went away,” Dario Perkins, an economist at TSLombard, said. “And since then, the economy’s cooled down again,” he added, bringing back K-shape references.

This year, however, inflation-adjusted wage growth has weakened as hiring has fallen, with the drop more pronounced for lower-income Americans. Their wage growth has plunged to an annual rate of just 1.5%, the Minneapolis Fed found, below that of the highest earning quarter of workers at 2.4%.

Slower income growth has left many lower-income workers less able to spend. Based on data from its credit card and debit card customers, Bank of America found that spending among higher-income households rose 2.7% in October compared with a year ago, while lower-income groups lagged at just 0.7%.

And a Federal Reserve Bank of Boston study in August found that consumer spending in recent years has been driven by richer households, while lower- and middle-income Americans have piled up more credit card debt even as they’ve spent less.

Businesses take note

Corporate executives are paying attention and in some cases explicitly adjusting their businesses to account for it. They are seeking ways to sell more high-priced items to the wealthy while also reducing package sizes and taking other steps to target struggling consumers.

Henrique Braun, chief operating officer at Coca-Cola, for example, said in late October that the company is pursuing both “affordability” and “premiumization.” It is generating more of its earnings from higher-end products such as its Smartwater and Fairlife filtered milk brands, while at the same time introducing mini cans for those looking to spend less.

“We continue to see divergency in spending between the income groups,” Braun said in a conference call with analysts last month. “The pressure on middle and low-end income consumers is still there.”

Sales of first- and business-class tickets have been fueling revenue and profit for Delta Air Lines, its CEO Ed Bastian said in October, while lower-end consumers have been “clearly struggling.”

And Best Buy CEO Corie Barry on Tuesday said that the top 40% of all U.S. consumers are driving two-thirds of all consumption.

The remaining 60% are focused on getting the best deals and are more dependent on a healthy job market, she said.

“One of the things we’re watching closely is how does employment continue to evolve for particularly that cohort of people who are living more paycheck to paycheck,” she added.

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AI plays a role

The massive investment in data centers and computing power has also contributed to the K-shaped economy, by lifting share prices for the so-called “Magnificent 7” companies competing to build out AI Infrastructure. Yet so far it’s not creating many jobs or lifting incomes for those who don’t own stocks.

“What we see at the very top is an economy that is sort of self-contained … between AI, the stock market, the experiences of the wealthy,” Atwater said. “And it’s largely contained. It doesn’t flow through to the bottom.”

Driven by big gains for companies like Google, Amazon, Nvidia, and Microsoft, the stock market has risen nearly 15% this year. But the wealthiest 10% of Americans own roughly 87% of the stock market, according to Federal Reserve data. The poorest 50% own just 1.1%.

K-shape comes with concerns

Many economists worry that an economy propelled mostly by the wealthiest isn’t sustainable. Perkins notes that should layoffs worsen and unemployment rise, middle- and lower-income Americans could pull back sharply on spending. Revenue for companies like Apple and Amazon would fall. Advertising revenue, which is fueling companies such as Google and Facebook parent Meta, typically plunges in downturns.

Such a cycle could even force the “Mag 7” to pull back on their AI investments and send the economy into recession, he said.

“Then you’re talking about the bottom of the K essentially pulling down the top,” he added.

Perkins, however, sees a different path as more likely: Many U.S. households will receive larger tax refunds early next year under the Trump administration’s budget law. And Trump will likely appoint a new Federal Reserve chair by next May who will be more inclined to cut interest rates. Lower borrowing costs could accelerate growth and wages, though it could also worsen inflation.

AP Retail Writer Anne D’Innocenzio in New York contributed to this report.

By AAMER MADHANI, Associated Press

WASHINGTON (AP) — The White House said Monday that a Navy admiral acted “within his authority and the law” when he ordered a second, follow-up strike on an alleged drug boat in the Caribbean Sea in a September U.S. military operation that has come under bipartisan scrutiny.

White House press secretary Karoline Leavitt offered the justification for the Sept. 2 strike after lawmakers from both parties on Sunday announced support for congressional reviews of U.S. military strikes against vessels suspected of smuggling drugs in the Caribbean Sea and eastern Pacific Ocean, citing a published report that Defense Secretary Pete Hegseth issued a verbal order for a second strike that killed survivors on the boat in that incident.

Leavitt in her comments to reporters on Monday did not dispute a Washington Post report that there were survivors after the initial strike in the incident. Her explanation came after President Donald Trump a day earlier said that he “wouldn’t have wanted that — not a second strike” when asked about the incident.

“Secretary Hegseth authorized Admiral Bradley to conduct these kinetic strikes,” said Leavitt, referring to U.S. Navy Vice Admiral Frank Bradley, who at the time was the commander of Joint Special Operations Command. “Admiral Bradley worked well within his authority and the law, directing the engagement to ensure the boat was destroyed and the threat to the United States of America was eliminated.”

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The lawmakers said they did not know whether last week’s Post report was true, and some Republicans were skeptical. Still, they said the reports of attacking survivors of an initial missile strike posed serious legal concerns and merited further scrutiny.

“This rises to the level of a war crime if it’s true,” said Sen. Tim Kaine, D-Va.

Rep. Mike Turner, R-Ohio, when asked about a follow-up strike aimed at people no longer able to fight, said Congress does not have information that happened. He noted that leaders of the Armed Services Committee in both the House and Senate have opened investigations.

“Obviously, if that occurred, that would be very serious and I agree that that would be an illegal act,” Turner said.

Trump on Sunday vigorously defended Hegseth.

“Pete said he did not order the death of those two men,” Trump said. He added, “And I believe him.”

Leavitt said Hegseth has spoken with members of Congress who may have expressed some concerns about the reports over the weekend.

Gen. Dan Caine, chairman of the Joint Chiefs of Staff, also spoke over the weekend with the four bipartisan lawmakers leading the Senate and House Armed Services Committees in which he reiterated “his trust and confidence in the experienced commanders at every echelon,” Caine’s office said in a statement.

The statement added that the call focused on “addressing the intent and legality of missions to disrupt illicit trafficking networks which threaten the security and stability of the Western Hemisphere.”

After the Post’s report, Hegseth said Friday on X that “fake news is delivering more fabricated, inflammatory, and derogatory reporting to discredit our incredible warriors fighting to protect the homeland.”

“Our current operations in the Caribbean are lawful under both U.S. and international law, with all actions in compliance with the law of armed conflict—and approved by the best military and civilian lawyers, up and down the chain of command,” Hegseth wrote.

Leavitt also confirmed that Trump later on Monday would be holding a meeting with his national security team to discuss the ongoing operations in the Caribbean Sea and potential next steps against Venezuela.

The U.S. administration says the strikes in the Caribbean are aimed at drug cartels, some of which it claims are controlled by Venezuelan President Nicolás Maduro. Trump also is weighing whether to carry out strikes on the Venezuelan mainland.

Trump on Sunday confirmed that he had recently spoken by phone with Maduro but declined to detail the conversation.

The September strike was one in a series carried out by the U.S. military in the Caribbean Sea and eastern Pacific Ocean as Trump has ordered the build up a fleet of warships near Venezuela, including the largest U.S. aircraft carrier.

More than 80 have been killed the strikes on small boats that the Trump administration alleges smuggle narcotics for drug cartels.

Venezuela’s National Assembly has announced the launch of an investigation into the lethal strikes carried about by the U.S.

Sunday’s announcement by the Assembly’s president, Jorge Rodríguez, marked the first time that a Maduro government official explicitly acknowledged that Venezuelans have been killed in the monthslong U.S. military operation.

Rodríguez, Maduro’s chief negotiator, said a group of lawmakers will come together to investigate “the serious events that led to the murder of Venezuelans in the waters of the Caribbean Sea.”

Associated Press writer Regina Garcia Cano in Caracas, Venezuela, and Konstantin Toropin contributed to this report.

By JOSH FUNK, AP Transportation Writer

Nearly 44% of the 16,000 truck driving schools in the U.S. may be forced to close after a review by the federal Transportation Department found they may not be complying with government requirements.

The Transportation Department said Monday that it plans to revoke the accreditation of nearly 3,000 schools unless they can comply with training requirements in the next 30 days. Another 4,000 schools are being warned they may face similar action.

This crackdown on trucking schools is the latest step in the government’s effort to ensure that truck drivers are qualified and eligible to hold a commercial license. This began after a truck driver that Transportation Secretary Sean Duffy says was not authorized to be in the U.S. made an illegal U-turn and caused a crash in Florida that killed three people. Duffy has threatened to pull federal funding from California and Pennsylvania over the issue, and he proposed significant new restrictions on which immigrants can get a commercial driver’s license but a court put those new rules on hold.

“We are reigning in illegal and reckless practices that let poorly trained drivers get behind the wheel of semi-trucks and school buses,” Duffy said.

The Transportation Department said the 3,000 schools it is taking action against failed to meet training standards and didn’t maintain accurate and complete records. The schools are also accused of falsifying or manipulating training data.

The list of schools being targeted wasn’t immediately released.

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The Community Opportunity to Purchase Act (COPA) will give community land trusts and other community groups first dibs at buying distressed properties. Supporters expect it to pass with support from housing officials.

John Leyva at a rally for the bill last week, saying his own building in Cobble Hill where rent regulations are expiring could have benefited from the legislation. (Patrick Spauster/City Limits)

It’s been a long time coming.

Over five years after it was first proposed, the Community Opportunity to Purchase Act (COPA) is expected to pass the City Council before the end of the year. The bill would give groups like community land trusts and tenant associations the first opportunity to bid on some apartment buildings when they go up for sale.

The idea has long had the backing of groups that preserve affordable housing, but has encountered resistance from the real estate industry and city housing officials. But in a deal being finalized this week, the city’s housing agency is finally getting on board, sources say.

Councilmember Sandy Nurse, the bill’s sponsor, said the legislation is “a great opportunity to preserve more housing.”

“We need COPA because New Yorkers are leaving,” she said. “People are just looking to have an affordable apartment and they can’t compete. And so we want to give our community a chance to stay.”

COPA would be another tool in the toolkit for Mayor-elect Zohran Mamdani, who has made social housing—which looks to put more housing in the hands of the city and community groups, rather than the private market—a part of his platform.

If passed, New York would join Washington, D.C. and San Francisco as cities with community opportunity to purchase laws on the books. Those policies have sometimes been criticized for disrupting an already complex housing market—criticisms echoed by COPA’s opponents.

The bill has the support of the majority of the City Council, sources say, as lawmakers finalize a version the Department of Housing Preservation and Development (HPD) can get behind.

A spokesperson for the mayor’s office did not immediately respond to questions about whether City Hall would support the bill.

“The coalition has made the case,” said Nurse, who said the bill’s 32 co-sponsers and dozens of the city’s community development corporations pushed the issue with HPD. “I think that has forced everyone’s feet to the fire.”

The agreement is expected to trim the universe of eligible buildings somewhat from what was originally proposed. To qualify, buildings must be in “distress”—meaning that they have a certain number of housing code violations—or have an affordability provision that is expiring.

Smaller landlords would be carved out: owner-occupied buildings with less than six units would not be eligible, nor would any building with three units or less.

HPD was opposed to the bill as recently as June, when councilmembers told City Limits they were frustrated with the agency. Housing officials worried prior versions of the legislation would disrupt the housing market, slow an already bureaucratic process, and potentially disadvantage smaller landlords.

HPD did not confirm or deny that it would support the bill, but sources say the agency helped shape the latest version.

“Whenever legislation is proposed that may significantly impact the housing landscape, we are committed to providing input and feedback to ensure that all potential effects are fully considered,” said Matt Rauschenback, HPD’s press secretary.

With the revised bill, potential buyers would have 45 days to inform the seller they plan to bid for the building before it goes up for sale to the general public. Buyers can be nonprofit groups like community land trusts, affordable housing developers, or—added at HPD’s request—for profit developers specializing in affordable housing preservation.

COPA is being considered alongside two other social housing bills.The first would create a city land bank to acquire and develop property. The second would change the process for auctioning city liens, requiring Council approval for competitive sales and enabling sales to the land bank. 

Unlike COPA, those bills don’t have the support of city agencies that would be involved in administering them. A smaller package of reforms recommended by the Council’s Temporary Task Force on Tax Liens looks more likely to pass.

Potential buyers, landlords, and policymakers are particularly interested in how COPA could impact distressed rent stabilized buildings.

Landlord groups say some buildings fall into disrepair because rents are not high enough for owners to keep up with rising expenses. They say policies like Mayor-elect Mamdani’s rent freeze proposal will exacerbate the problem.

But the bill’s supporters see it as part of a solution, allowing groups that are interested in preserving affordable housing to acquire those buildings, instead of speculators.

“Rather than having your building sold, and then being unclear who you’re writing your rent check to every month, a trusted community based entity could come in, purchase that building and co-govern the housing with tenants,” said Will Spisak, a senior policy strategist with the New Economy Project.

A scene from a June rally for social housing bills, including COPA. (Adi Talwar/City Limits)

Some nonprofit housing organizations like the Community Preservation Corporation, Enterprise Community Partners, and The Association for Neighborhood and Housing Development have also been sounding the alarm about preservation needs in the city’s affordable housing stock.

“There should be a preservation strategy in [Mamdani’s] housing plan,” Cea Weaver, head of the New York State Tenant Bloc told City Limits earlier this month.

Nonprofits or tenants that buy those buildings might have the same revenue problems as previous ownership, though. “We’ve been pushing HPD to keep the universe focused on distress, but not so distressed to the point where they’re setting everyone up for failure,” said Spisak.

To make COPA work for those severely distressed buildings, supporters suggested the bill be used in tandem with some of HPD’s other programs backed with funding to support community ownership and aid distressed buildings, like the Neighborhood Pillars program.

John Leyva lives in a building financed with low income housing tax credits at 63 Tiffany Place in Cobble Hill, Brooklyn. But the regulatory agreement on his building is expiring, meaning a for-profit developer could take over and raise rents.

“[This bill] would have saved my building once already,” said Leyva, who wants the tenant association to be able to take over. “[The new landlord] wanted to raise the rents and kick us all out of this place. We organized a lot, but it’s been super hard because we don’t have something like COPA that will make it easier for a building like ours.”

To reach the reporter behind this story, contact Patrick@citylimits.org. To reach the editor, contact Jeanmarie@citylimits.org

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