Yes, Virginia, the k-shaped economy is real

 

 - by New Deal democrat

Financial pundit Lance Roberts recently wrote an article entitled, “K-shaped economy: reality or media driven perception,” in which he argued: 

Everyone “knows” wealth concentration is worse than ever. As I laid out in my earlier piece on the K-shaped economy and why the middle class moved up, the income story runs in the opposite direction from the coverage.

The wealth story is stranger still. Pull the Federal Reserve’s Distributional Financial Accounts and compute it yourself, and the top 10% share of household net worth peaked at 70.3% in the first quarter of 2019. It sits at 67.9% today. The bottom 50% share bottomed at 0.4% in late 2011, was 1.7% at the end of 2019, and is 2.5% now.

When looking at wealth concentrations, it is very easy to blame those at the top of the wealth pyramid. Yes, the top 10% of the population held a 31.8% share of economic wealth in the fourth quarter of 2025. Yet, the bottom half gains since 2019 came almost entirely from the 90th to 99th percentiles, which fell from 39.7% to 36.3%. In plain English, the professional class lost relative ground, not the working class. Such is a detail that changes who you think is complaining.

Furthermore, the recovery that no one called K-shaped was far worse. Between 2007 and 2016, median wealth for the bottom 30% of families fell 31%, while the top 10% fully recovered.⁷ Saez found the top 1% captured 91% of real income growth from 2009 to 2012. Nobody ran a K headline in 2013. The data was uglier then.

Since my approach to Roberts, who typically writes from a right-wing perspective, is not “is he wrong,” but rather “*how* is he wrong,” I checked his work.

First, as I recall, while they may not have called it a “K-shaped” economy, there were plenty of articles in thew first five years of the last expansion about the inequality of wealth and spending. But as per my usual practice, I went back ands independently looked at the numbers.

Roberts says that “the middle class moved up.” That’s certainly true if we look at real median incomes, which increased 42% from $61,910 in 1984 to $87,460 in 2025, as per the Census Bureau data that were just updated last week:

But that data only takes us up to 9 months ago, whereas most of the “K-shaped” commentary is from this year. And according to Motio Research, on a YoY basis real median household income in August was actually down -0.1%:

Ands yet according to the weekly Redbook Index, as well as the monthly data, retail sales YoY growth has actually accelerated this year:

As I’ve pointed out a number of times, the stock market has been up about 15%-20% this year, driving a lot of “wealth effect” spending. And owns stocks? The top 1% own an outright slight majority, with another 27% being owned by the 90th to 99th percentile, for a total of 88%:

And Roberts’s story on wealth distribution is problematic as well. While it’s true that the combined bottom 90% have a bigger share of total wealth than 2019, as confirmed in the below graph:

The year 2019 is not that relevant to the spending pattern in the past several years. If we look at the changes in wealth shares since July 2023, a very different picture emerges:

The top 1%, and even more drastically, the top 0.1% of the wealth distribution have been running away with the growth, while the bottom 50%, and even more the 50th to 90th%, have been losing ground. And that divergence accelerated this year.

This is the continuation of a long term trend that goes back at least until the early 1990s:

The real post-pandemic tale is told by the following two graphs, of the absolute nominal levels of wealth held by each percentile. Thew first norms each level to 2019:

The share of net worth held by the bottom 50% increased sharply in the immediate post-pandemic aftermath, buoyed by stimulus payments and big increases in wages supported by the white hot labor economy.

But since mid-2022, the gains have been totally lopsided: 

The nominal wealth of the bottom 50% is up 17.0%, and the next 40% up 23.1%, while the 90th-99th% is up 30.5%, the top 1% is up 42.4%, and the top 0.1% is up 46.6%, vs. 8.8% for the CPI. And we know that real income has declined in the past year, with real aggregate payrolls barely up at all. Since house price growth has stalled, and as per the above lower income households own very few stocks, the likelihood is that this year their amount of real net wealth owned has stalled if not declined as well.

 In short: yes, Virginia, the K-shaped economy is real.

Weekly Indicators for September 14 - 18 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

The two big driving forces at the moment - increased interest rates and spiking gas prices - continue to be the most salient datapoints, along with the inflationary pulse that continues throughout the economy. Nevertheless, just like the monthly data, the high frequency data also continues to indicate that the economy is growing, with little imminent danger of a downturn.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and bring me a penny or two for my efforts.

Three reports on the state of goods production show rebound continues - but maybe with a wobble

 

 - by New Deal democrat



This week we got three significant updates about the state of goods production in the economy: industrial production this morning, and total business sales as well as the New York and Philly manufacturing indexes earlier this week. Let’s look at each of them.

Industrial production, one of the four important monthly series that the NBER looks at in determining whether the economy is expanding or contraction, has been on an upward trend since last year, and that continued in August, although the monthly numbers were decidedly mixed. Headline production (blue) was unchanged at its post-pandemic high, while manufacturing production (red) declined -0.3%. Meanwhile, electric and gas utility production (gold, right scale), which is most closely aligned with AI data center construction, increased 1.8%. The below shows all three normed to 100 as of just before the pandemic:

Utility construction has outpaced the manufacturing sector as well as the headline number in the past few years, and continued to do so last month. Indeed, on a YoY basis, while headline production was up 1.7%, but its manufacturing component only up 0.3%, utilities have increased sharply, by 10.9%:

So the big news from industrial production is that AI data center construction continues to be the centerpiece of the manufacturing rebound since last year.



A similar continuation of trends, both good and bad, was apparent in the NY and Philly manufacturing indexes. Here is the average of the headline number for both indices (blue) and the more leading new orders component (red):

This month the headline average was 22.7 and the new orders average was 15.6 [note that these are diffusion indexes where any value above 0 indicates expansion]. Although there was significant month over month deceleration, the three month averages continue to be close to their averages during the post-pandemic Boom in 2022. For further context, here is further context with the long term historical graph:

In particular the leading new goods component indicates that we should expect the manufacturing expansion to continue for the next several months.

If the good news continued this month, so did the bad news; namely, that the inflationary pulse continued as well. Here’s the historical graph of the diffusion indices of both prices paid by producers (blue) and prices received by them downstream (red):

This month prices paid showed further widespread increases, at 55.8, while prices received were also close to their highs over the past 16 months, at 29.7. As with all months so far this year, the current widespread pricing pressures on the incoming end are only partially being passed on downstream. Further, as shown in the below longer-term historical graph, this is also as bad as at any time since the turn of the Millennium, with the exception of the post-pandemic period and the gas price-driven spike during the first seven months of the Great Recession:

If our first two metrics showed a continued inflationary industrial expansion, the third, total business sales (blue)and inventory (red), updated through July indicates there may be some wobbling:

Note that these are nominal values. While sales increased 0.3% in July, inventories increased 0.8%. If we apply the PCE price deflator for July, which increased 0.2%, these are up 0.1% and 0.7% respectively. But note that sales remained below their recent May peak for the second month in a row. This is significant, because as the below historical graph (in log scale) shows, sales turn down first before inventories do:

In fact it is likely the downturn in sales and accumulating inventory which causes companies to cut back.

This may be just noise, or it could be more. I would need to see evidence of a sales slowdown in other metrics, like personal spending and the ISM reports as well as the regional Fed reports, to believe that this is more significant.

So, for now, the manufacturing rebound continues, although it is inflationary and mainly driven by AI related spending.

August new housing construction: saying goodbye to the incipient recovery

 

 - by New Deal democrat

This morning’s report on housing construction may be the last decent one for quite awhile. Let’s wistfully take a look.

I’ve been writing for most of this year that housing did not look like it was heading towards a recession, but was most consistent with coming out of one. Although on a monthly basis, the main metrics declined, they continued that trend. Housing starts (blue) declined -2.7% for the month to 1.394 annualized, while the less volatile and slightly more leading permits (gold) declined -2.6% to 1.275 million. The least volatile metric of all, single family permits (red, right scale) declined -1.8% to 878,000:

As you can see, all three metrics have been trending essentially sideways since the summer of last year. For the record, on a YoY basis, while starts are down slightly by -3.5%, permits are higher by +3.5%, and single family permits by +1.3%:

Although I won’t bother with the long term historical graph this month, in the past these three have generally been down -10% or more YoY to be consistent with the onset of a recession.

Additionally, the “last shoe to drop” in this series, housing units under construction, increased by 4,000 annualized to 1.267 million units:

As you can see, this series has been essentially flat as well since the beginning of this year.

Why is that noteworthy? Because as this long term historical graph shows, when units under construction stop declining, typically an economic recovery is beginning or has already begun:

The same shows up in the YoY comparison graph:

On a YoY basis, units under construction are only down -3.2%, which in the past has almost always meant that the economy is months into a new expansion.

Which, if it weren’t for rising interest rates and a potential oil price spike, would all be good news.

But of course interest rates have been increasing, and sharply this past week. The below graph of mortgage rates through last week (blue) shows them well below 7%:

But as of today, Mortgage News Daily (not shown) shows them at 7.24%, which is higher than any spike in the past five years except for late 2023. As the graph immediately above shows, that (noisily) led to roughly a -10% decline in permits issued (gold, right scale) over the next few months.

Let me close by putting this in my forecasting perspective. The housing market, along with corporate profits and real retail sales per capita, is one of the three nonfinancial, or “real world” long leading indicators that is of added importance for whether the US economy continues in expansion or falls into recession. As of now, the latter two are still very positive, but it is certainly not good for the economy over the next 12 to 24 months if housing is about to begin a renewed downturn.

Jobless claims continue near historic lows, forecast continued declines in the unemployment rate

 

 - by New Deal democrat

Let’s take our weekly look at jobless claims. A reminder: I do this because it is a very good leading indicator for the unemployment rate, as well as 1/2 of my “quick and dirty” tool along with stock prices for forecasting the short term economy.

And the news on new jobless claims continued to be excellent, as they declined -10,000 back under 200,000 to 196,000. The four week moving average declined -2,750 to 203,000, also among the lowest readings in the past 50 years, while continuing claims with the usual one week delay declined. -39,000 to 1.730 million, the lowest in over 2 1/2 years:

On the YoY% basis more useful for forecasting, initial claims were down -15.9%, the four week moving average down -15.0%, and continuing claims down -10.1%:

If anything, the positive comparisons are intensifying, which is also a very positive sign for the economy in the next few months. In particular, if the oil price spike intensifies enough, I would expect increased layoffs in advance of any downturn caused thereby.

Finally, let’s take out initial look at what this likely means for the unemployment rate in the next several months:

The last time jobless claims were at this level, not only was the unemployment rate below its current 4.1%, it was below 4.0%. In other words, this forecasts that the unemployment rate in the next several jobs reports is likely to go down further.

August real retail sales show consumers keep powering ahead - by digging deeper into their wallets

 

 - by New Deal democrat

As per my usual intro, real retail sales is one of my favorite economic indicators, because it tells us so much about consumer spending, which is about 70% of the economy, and also because, with a lot of noise, consumption leads employment.

Last month, as it does about once a year, real retail sales laid an egg, declining -0.6%. This morning’s report for August reversed that and more, increasing 0.8% for the month. As we’ll see below, consumers dug deeper into their wallets to keep up with the inflationary expansion (nominally retail sales rose 1.2% for the month and were up 6.0% YoY).

To start, here are the post-pandemic absolute numbers for real retail sales:

Since gas prices have been a major driver of both inflation - and, temporarily, deflation - in the past few months, here’s a look at the monthly % changes in nominal retail sales excluding gas stations (red), which rose 1.1% vs. total retail sales (blue) which as noted above rose 1.2%:

As you can see, since the two measures have been similar most months, surprisingly gasoline sales do not appear to have been the main reason for the big increase in retail sales this year. There has been some speculation that the surge in consumer spending in spring and early summer was driven in part by larger tax refunds to upper income recipients due to the last year’s Budget Bust-out Bill. If so, despite possible contrary appearances in July, such added spending apparently did not tail off through August. 

On a YoY basis, since consumer inflation is up 3.4%, real retail sales were up 2.6% YoY. For comparison purposes, I also show the YoY% change in real personal consumption (gold) which won’t get reported until the end of this month, And since consumption leads employment (as I examined at length again yesterday), here is the updated comparison (/2 for scale) with nonfarm payrolls (red):

This continues to suggest that on a YoY basis the mild rebound we have seen in the jobs reports for most of this year is likely to continue for at least the next several months.

All of this is positive. But what isn’t positive is when we compare real retail sales, and real personal consumption of goods, as per above, with real aggregate payrolls, both for nonsupervisory workers (dark red), and for all employees including management (thin, orange):

Real payrolls are up 1.0% YoY, far less than real sales. This is further evidence that real sales increases have been driven by consumers’ digging deeper into their wallets or cashing in some of their stock market gains.