K-Shaped Consumer Spending Gap Has Closed, BofA Data Shows

The long-observed “K-shaped” divergence in consumer spending has officially reversed, with lower-income households now showing slightly stronger year-over-year spending growth than their higher-income counterparts. This analysis, based on aggregated Bank of America credit and debit card data, marks a significant shift in a pattern that has persisted for over a year.

Key Findings from BofA Data

According to the report from Bank of America (BofA), the reversal in spending trends became apparent in the last two weeks. The data, which excludes gasoline purchases, indicates that the financial pressures that previously weighed more heavily on lower-earning consumers may be easing relative to other groups.

This development suggests a potential broadening of consumer strength, a crucial indicator for the overall health of the U.S. economy. The K-shaped pattern, where higher-income individuals increased spending while lower-income individuals pulled back, had been a defining feature of the post-pandemic economic landscape.

Drivers Behind the Reversal

BofA analysts identified three primary factors contributing to the closing of the spending gap:

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• Labor Income: Lower-income households, which are more sensitive to changes in labor income, have likely benefited from recent job growth or adjustments in tax withholdings.
• Gasoline Prices: The substantial drop in gas prices during June provided disproportionate relief to lower-income consumers, who allocate a larger percentage of their income to fuel costs. The report notes, however, that prices have since begun to rise again.
• Base Effects: The spending gap between the two income cohorts widened significantly in June 2025. This created a favorable statistical comparison, or base effect, for the gap to narrow and ultimately reverse in June and July of this year.

Implications for Investors

A more unified consumer spending trend could have positive implications for sectors reliant on broad-based consumption, such as mass-market retail and consumer staples. However, the sustainability of this reversal remains in question, particularly if inflationary pressures like rising gas prices re-emerge and weigh on household budgets.

Investors will be closely watching upcoming economic data, including consumer confidence and jobs figures, to gauge whether this newfound strength in lower-income spending is a durable trend or a temporary shift driven by short-term factors.