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.
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.
I love watching “Next Man Up” basketball, where the spotlight rotates unpredictably. One night it’s the bench guard dropping 30, the next it’s the role player posting a triple-double.
CapitalG’s Jill Chase—who captained her college basketball team at Williams College—says this logic actually applies to Alphabet’s growth firm. When I ask her what basketball team is most like CapitalG, she lists the WNBA’s Golden State Valkyries.
“Everybody has a different skill set, and everybody is willing to drop anything to help each other win,” said Chase. “It’s a different person every night who wins the game. And I think that’s really consistent with the way CapitalG is building its culture.”
For the first time since the firm was started in 2013, it’s promoting two general partners, Chase and Alex Nichols, Fortune has exclusively learned. Chase, who joined CapitalG in 2020 specifically with a thesis around AI, has backed Abridge, Baseten, Canva, LangChain, Physical Intelligence, and Rippling.
Nichols, meanwhile, joined CapitalG in 2018 as an associate and was promoted to partner just two years ago. He previously worked with managing partner Laela Sturdy on the firm’s investments in Duolingo, Stripe, and Whatnot, and recently led CapitalG’s investment in Zach Dell’s energy startup BasePower. At a moment where there’s mounting angst around data centers and what it will take to power them, Nichols has a surprising take on how AI will affect energy—that both batteries and solar are getting cheaper and better at something like Moore’s Law speed. Those twin cost curves, over time, should actually drive energy prices down.
“I’m actually very optimistic about the future of energy prices,” he said. “You look at the history of energy consumption versus GDP. And cheap energy means more production, more income, and means a higher standard of living.”
At a moment when venture is perhaps more competitive than ever—and there are certainly some solo GPs out there making their mark—there’s an argument that as lines blur between disciplines in an AI-ified world, venture is by necessity a team sport.
Sturdy—who’s been CapitalG’s managing partner since 2023 (and also captained her college basketball team)—and Chase both have clearly taken some learnings from their time on the court. Chase sees venture overall as becoming more team-oriented: “Historically, it used to be like ‘you made general partner, go out and win your deal.’ To me, that’s not the right way to be successful in venture ever.”
Sturdy adds that in basketball, like venture, “We have to look at the scoreboard every once in a while, and you have to get back up when you get crushed… And, of course, coming together is better than playing alone.”
Term Sheet Podcast…This week, I spoke with Exelon CEO Calvin Butler. As resource-hungry data centers continue to sprout across the country, many are questioning whether the nation’s utility network can keep pace with such large-scale demand. Butler says it can. Listen and watch here.
Joey Abrams curated the deals section of today’s newsletter.Subscribe here.
VENTURE CAPITAL
– humans&, a San Francisco-based AI lab, raised $480 million in seed funding. SVAngel and GeorgesHarik led the round and were joined by NVIDIA and others.
– Emergent, a San Francisco-based platform designed for AI software creation, raised $70 million in Series B funding. Khosla Ventures and SoftBank led the round and were joined by Prosus, Lightspeed, Together, and Y Combinator.
– Exciva, a Heidelberg, Germany-based developer of therapeutics designed for neuropsychiatric conditions, raised €51 million ($59 million) in Series B funding. Gimv and EQTLifeSciences led the round and were joined by FountainHealthcarePartners, LifeArcVentures, and others.
– Pomelo, a Buenos Aires, Argentina-based payments infrastructure company, raised $55 million in Series C funding. Kaszek and InsightPartners led the round and were joined by IndexVentures, AdamsStreetPartners, S32, and others.
– Cloover, a Berlin, Germany-based operating system designed for energy independence, raised $22 million in Series A funding. MMCVentures and QEDInvestors led the round and were joined by LowercarbonCapital, BNVTCapital, BoschVentures, and others.
– Statusphere, a Winter Park, Fla.-based influencer marketing technology platform, raised $18 million in Series A funding. VolitionCapital led the round and was joined by HearstLab, 1984Ventures, and HowWomenInvest.
– DominionDynamics, an Ottawa, Canada-based defense technology company, raised $21M CAD ($15.2M USD) in seed funding. Georgian led the round and was joined by BessemerVenturePartners and BritishColumbiaInvestmentManagementCorporation.
– Cosmos, a New York City-based image collection and discovery platform, raised $15 million in Series A funding. ShineCapital led the round and was joined by Matrix and others.
– Mave, a Toronto, Canada-based real estate AI company, raised $5 million in seed funding from StaircaseVentures, RelayVentures, N49P, and AlatePartners.
– Stilla, a Stockholm, Sweden-based developer of an AI designed to accommodate entire teams, raised $5 million in pre-seed funding. GeneralCatalyst led the round and was joined by others.
– AsymmetricSecurity, a London, U.K. and San Francisco-based cyber forensics company, raised $4.2 million in pre-seed funding. SusaVentures led the round and was joined by HalcyonVentures, OverlookVentures, and angel investors.
PRIVATE EQUITY
– ConnectWise, backed by ThomaBravo, acquired zofiQ, a Toronto, Ontario-based agentic AI technology company designed to automate high-service desk operations. Financial terms were not disclosed.
– GrantAvenueCapital acquired 21stCenturyHealthcare, a Tempe, Ariz.-based vitamins, minerals, and supplements company. Financial terms were not disclosed.
– HighlanderPartners acquired Tapatio, a Vernon, Calif.-based hot sauce brand. Financial terms were not disclosed.
– PlatinumEquity acquired CzarnowskiCollective, a Chicago, Ill.-based exhibit and events company. Financial terms were not disclosed.
– UnitedBuildingSolutions, backed by AEIndustrial, acquired DFWMechanicalGroup, a Wylie, Texas-based HVAC solutions company. Financial terms were not disclosed.
IPOS
– PicPay, a Sao Paolo, Brazil-based digital bank, now plans to raise up to $435.1 million in an offering of 22.9 million shares priced between $16 and $19 on the Nasdaq. The company posted $1.7 billion in revenue for the year ended September 30. J&F International and BancoOriginal back the company.
– EthosTechnologies, a San Francisco-based online life insurance provider, plans to raise up to $210 million in an offering of 10.5 million shares priced between $18 and $20. The company posted $344 million in revenue for the year ended Sept. 30. GeneralCatalyst, HeroicVentures, EricLantz, and others back the company.
FUNDS + FUNDS OF FUNDS
– BlueprintEquity, a La Jolla, Calif.-based growth equity firm, raised $333 million for its third fund focused on enterprise software, business-to-business, and tech-enabled services companies.
PEOPLE
– Area 15 Ventures, a Castle Pine, Colo.-based venture capital firm, promoted AdamContos to managing partner.
– BullCityVenturePartners, a Durham, N.C.-based venture capital firm, hired CarlyConnell as a principal.
– HarvestPartners, a New York City-based private equity firm, promoted LucasRodgers to partner, MatthewBruckmann and IanSingleton to principal, and ConnorScro to vice president on the private equity team.
– Wingman Growth Partners, a Greenwich, Conn.-based private equity firm, hired CheriReeve as CFO. She previously served as principal and CFO at AtlasHoldings.
Davos 2026: reading the signals, not the headlines | Fortune
Louisa Loran advises boards and leadership teams on transformation and long-term value creation and currently serves on the boards of Copenhagen Business School and CataCap Private Equity.At Google, Louisa launched a billion-dollar supply chain solutions business, doubled growth in a global industry vertical, and led strategic business transformation for the company’s largest customers in EMEA—working at the forefront of AI, data, and platform innovation. At Maersk, she co-authored the strategy that redefined the brand globally and doubled its share price, helping pivot the company from traditional shipping to integrated logistics. Her career began in the luxury and FMCG space with Moët Hennessy and Diageo, where she built iconic brands and led innovation at the intersection of heritage and digital transformation.
China’s hotels are welcoming record numbers of travelers, yet room rates are sinking—a paradox many operators blame on Trip.com Group Ltd.
For Gary Huang, running a five-room homestay in the scenic Huzhou hills near Shanghai was supposed to secure his family’s financial future. Instead, he and other hoteliers in China’s southeastern Zhejiang province say nightly rates have fallen to levels last seen more than a decade ago, as Trip.com’s frequent discount campaigns force them to cut prices simply to remain visible on China’s dominant booking platform.
“The promotion campaigns now are almost a daily routine,” said Huang, who asked to use his self-given English name out of concern of speaking out against Trip.com. “We have to constantly cut prices at least 15% to attract travelers. We have no choice but to go along with the price cuts.”
Trip.com has been central to China’s post-pandemic travel rebound, connecting millions of travelers with small operators like Huang. But for many hotels, visibility—and sometimes survival—comes at the expense of profits.
That dynamic is now at the heart of Beijing’s antitrust probe. Regulators allege Trip.com is abusing its market position, with analysts citing deflation across the sector as the government’s main concern. Interviews with lodging operators, industry groups and travel consultants describe a system where constant price-cutting and opaque policies are eroding profitability, even as demand rebounds.
Trip.com has said it’s cooperating with the government’s investigation. The company’s stock dove more 16% since the probe was announced a week ago.
Revenue per room—a key hotel metric—was flat across China in 2025, even as other Asian markets saw gains, according to Bloomberg Intelligence. Marriott International Inc.’s revenue per room in China fell 1% most of last year, while Hilton’s China room revenue trailed its regional peers.
The company controls about 56% of China’s online travel market, according to China Trading Desk, and has grown into the world’s largest booking site. Its dominance has helped fuel domestic tourism’s recovery—nearly 5 billion trips were logged in the first three quarters of 2025—but operators say the benefits are being offset by falling room yields.
“The market has developed unevenly and innovation is lacking due to monopolistic practices,” said He Shuangquan, head of the Yunnan Provincial Tourism Homestay Industry Association that represents some 7,000 operators. “The entire online travel agency sector is stagnating in a pool of dead water.”
‘Pick-one-of-two’
The broader challenge is oversupply and cautious consumer spending. In regions like Yunnan, hotel capacity has tripled since the pandemic, just as travelers tightened budgets. Consultants note that while people are traveling more, they’re spending less—leaving hotels slashing rates to fill empty beds and posting billions in losses.
For operators like Huang, the paradox is stark: the platform that delivers customers is also accelerating the race to the bottom. The complaints center around Trip.com’s “er xuan yi,” Mandarin for pick-one-of-two exclusivity arrangements—a practice that Chinese regulators have repeatedly vowed to stamp out.
Trip.com categorizes merchants into tiers with “Special Merchants” enjoying the most visibility and traffic, Yunnan Provincial Tourism’s He said. However, these top-tier merchants are typically prohibited from listing on rival platforms like Alibaba’s Fliggy, ByteDance’s Douyin or Meituan. Merchants who aren’t bound by these exclusive arrangements report being effectively compelled to offer the lowest prices on Trip.com’s online booking platform Ctrip, or risk facing a raft of measures like lowered search rankings.
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