What execs are saying about the K-shaped economy

Hester Prynne wore a scarlet A, but CFOs and other executives are apparently looking lower in the alphabet for their own memorable letters. And right now, they’re wearing a scarlet K.

Talk of a K-shaped economy—in which top-earning households drive the bulk of spending, while lower-income households pull back—has reached something of a fever pitch in recent weeks. The phrase is likely resonating because of the murkiness of this current moment in the US economy, when mixed signals—like relatively low unemployment but also hiring sluggishness and deflated consumer sentiment—add up to a muddled snapshot, making it easier to let an intriguingly shaped consonant explain away all our economic woes.

Never ones to shy away from a buzzword, execs are clearly taking note, often bringing up the K-shaped economy because they know it’s on everyone’s minds.

Beat to the punch. Take Robert Kay, CEO of kitchenware maker Lifetime Brands. On the company’s November 6 earnings call, Kay noted that “overall end market demand continue[d] to evolve” in Q3, “driven partly by the current macro environment.”

“You will increasingly hear about the K-shaped economy where there is a trending diversion of outcomes between different age and demographic groups,” he added, saying the company was “closely monitoring these trends.”

“Along these lines, we remain wary of a slightly down trend for this holiday season,” Kay added. “However, expect that shipments to two of our three largest customers will rebound in the fourth quarter due to a shift of orders from the third quarter to the fourth quarter.”

Meanwhile, Michael Brown, CEO of Travel & Leisure Co., a timeshare and travel company, brought up the K-shaped economy when discussing travel bookings at Morgan Stanley’s Global Consumer & Retail Conference on December 2.

“When we checked in to Q3, our forward bookings into Q4 were very strong. We’re modestly ahead of 2024. Six weeks later, we’re now into booking for Q1. There’s been no real change to that pattern,” he said. “It’s been a little difficult this year because between “Liberation Day,” the K-shaped economy, macro issues, geopolitical issues, the one thread for us that’s been super consistent has been the performance of our consumer.”

On the spot. Other execs aren’t voluntarily falling into the K-hole—they’re being questioned about it.

When asked what evidence of the K-shaped economy Home Depot saw in its Q3 data, CEO Ted Decker said the company didn’t “see anything specific” among its higher income customers.

“If there’s an indication of maybe some fatigue in taking on bigger projects, we have seen Pro backlogs and larger backlogs start to diminish a little bit,” he said on the company’s November 18 earnings call. “We’re seeing a little softening in [the] larger project backlog. I can’t say we’ve tied that directly to an income cohort, but we’ve definitely seen the dynamic.”

Synonym city. Finally, there was one other way executives talked about the K-shaped economy: by not talking about it. Or rather, they talked about “the bifurcated consumer,” which is exactly what the K-shaped economy is all about.

Exhibit K: Richard Hallé, CFO of Natural Grocers, a health food chain, on the company’s November 20 earnings call.

“There’s definitely, as you’ve heard across all retail, a pullback by lower middle income consumers in a bifurcation in the consumer segment, where higher households are continuing to spend,” Hallé said. “Everybody is looking for value; part of our filing principles is always affordable prices. And we’re going to continue to lean hard into that.”

A similar sentiment popped up on Sally Beauty’s November 13 earnings call, when an analyst asked CEO Denise Paulonis about the bifurcated consumer environment.

“We did see a bit of a slowdown particularly on the low-income customer coming into our stores as we’ve navigated through the 40-plus days of the government shutdown,” she said. “At this point, we hope that that’s transitory behavior. We’re certainly watching and monitoring what is happening with that consumer base.”