June 29, 2026

The below transcript is a translation of the podcast audio that has been machine generated by Adobe Podcast.

Hi, everyone. This is Taylor St. Germain with ITR Economics. Thanks so much for joining me on this episode of TrendsTalk. We at ITR are your apolitical and unbiased source of economic intelligence. And today I wanted to talk about this idea behind a K-shaped recovery.

You might hear that a lot in the media, a K-shaped economy, a K-shaped recovery, and I wanted to put some context behind the phrasing here. And I’m going to do that through a number of different examples, one looking at the consumer and then second, looking at manufacturing and some of the different vertical markets. The reason we refer to the economy as a K-shaped economy is think about the upper end of the K and the lower end of the K. It’s really segmenting the economy into two groups, and that’s based on relative performance. And, you know, it is important to look at the economy that way because we have a lot of data that does suggest there’s almost a tale of two economies that’s happening here today.

So let me give you an example from a consumer lens to start. So we hear out there in the media that the lower income consumers are struggling, the higher income consumers are prospering right now. And we’re not just hearing that out there in the media, we actually have data to back that up and support it. So one chart that we look at, one metric that we look at is food, housing and healthcare as a percent of consumers expenditures. And we break these consumers down into five different income brackets. We have the 0-20% of earners, that’s the lower end of earners here in the US, 20-40, 40-60 percentile, 60-80, and then the top 20% of earners. So we’re really taking the consumer, breaking it down into five parts based on their incomes. And what we’ve seen is that for the bottom 20% of earners and then that 20-40 percentile, so it’s really capturing the bottom 40% of earners, we are seeing food, housing and healthcare as a percentage of expenditures rising, and not just rising, but rising above the long term trend line. So it’s clear that those bottom 40% of earners here in the US are struggling when it comes to seeing increased costs again related to food, housing and healthcare. But when you look at the top 60% of earners, so the again, we break that down into three groups, 40-60, 60-80, and the top 20, those expenses, food, housing and healthcare, are generally below the long run average or are actually declining relative to where we were in previous years. And so that’s a great example of this K-shaped economy. You’ve got the lower end of the K, which is the bottom 40% of consumers that are seeing their costs rising in a more significant way than the top 60% of earners. So again, you’re really looking at a tale of two economies, thus the upper end of the K, the lower end of the K.

We’re not just looking at that from a consumer perspective, but also we look at that in the business to business side of the economy. So there’s a great example, we look at our one of our primary data series that you all are very aware of in the Trends Report, for those of you that subscribe, that’s our industrial production metric. Well, industrial production breaks down into two large subcomponents, which is manufacturing and then electric and utilities production. And if you look at those two subcomponents, manufacturing is growing, yes, but really flat compared to where we were in 2022 if you look at the levels we’re at today. Well, on the other hand, the utility space is growing and growing at a record pace. So again, it gives you some perspective that when you break it down a level, utilities is the upper end of the K, well I’d classify manufacturing is a little bit of a lower end of the K. And then just the final example for you all. You know, in our trends report, we track several subcomponents and we have things like North America light vehicle production, which as of this recording here today is basically flat year over year. We have medical equipment that’s down 4% year over year, heavy duty truck production down 23%, food production is only up 1%, chemical production is only up 1.5%. So again, I’d classify a lot of those sectors of the economy as the lower end of the K. But then you have data sets like defense, which is up almost 28%, construction machinery up 22% year over year. You’ve got data center construction up 30%. And again, I would classify that as the upper end of the K. And there’s examples like this all throughout the economy.

So I wanted you all to have a little bit of context to when us economists and the media are talking about the upper end of the K versus the lower end of the K, this K-shaped economy. And that’s part of the work that we’re doing here at ITR today, is to say, we really want to focus on those markets that are on the upper end of the K. We want you to grow. There’s challenges out there in the economy with some of these industries that seem to be just hanging on in terms of seeing some of these much lower level of growth rates. So I want to encourage you all, again, head over to the Trends Report, a lot of the data series I referenced today are in there, especially that manufacturing module. We have an At-A-Glance section in the Trends Report that just lists all of these different vertical markets and where their growth rates are today, and where they will be over the course of the next three years.

So again, folks, we’re still optimistic on what the path forward looks like. I want to remind you all that from a GDP standpoint, we still have this big US economy growing over the next three years. But it is important that you zero in on some of these more granular markets, some of these subcomponents, because there’s a very different story depending on which vertical market that you’re focused on. If we can help you out there, that’s what we do every day here at ITR, help our clients find markets that correlate to their business and that will provide them opportunities here into the future. So make sure you get in touch with us through our website. As always, please connect with me on LinkedIn, happy to help. But for now, hope you have a little bit more context behind this term K-shaped recovery, K-shaped economy. I’ll continue to keep you updated as we move deeper into 2026 and how these markets are performing. Thanks for joining me on this episode of TrendsTalk. Please like and subscribe to TrendsTalk wherever you listen to your podcasts. I’m looking forward to seeing you on the next one. Thanks so much. Take care for now.