The ‘E-shaped’ economy is replacing the K-shaped one in 2026, the economist says: The middle class is ‘spending in a fearful way’ now.

It is difficult to define the US economy in black and white terms as “good” or “bad.” On several fronts, the data says the economy is healthy. But surveys show that American consumers don’t feel that way.

“There’s no doubt now that different data can tell different stories,” says Heather Long, chief economist at Navy Federal Credit Union.

Depending on which measure you look at, inflation is falling or staying flat in recent months, Long points out. The consumer price index is down from a 9% peak in June 2022 and up 3% from June 2023, according to US Bureau of Labor Statistics data. Private spending has remained steady over the past year, coming in at 2.9% in December 2025, according to the latest calculations from the Bureau of Economic Analysis.

But the prices of many consumer goods remain above what they were in 2020, and wages rose significantly over that period when adjusted for inflation, according to the non-political group, The Hamilton Project. This difference may be contributing to Americans’ negative feelings about the economy. Consumer sentiment is down about 13% year-over-year since February, according to the University of Michigan Survey of Consumers, which is released monthly.

DO NOT: How to read people and master your body language to be effective at work

Many economists have referred to the US economy as “K-shaped” in 2025, showing how high-income earners – continuing to spend and drive the economy – while low-income Americans have fallen behind.

Long, who has been among the economists using the phrase “K-shaped,” says that the economy is taking more of an “E-shape” in 2026, with three consumer trends instead of two. The middle class is diversifying, and the behavior of those people is starting to show signs of growing concern, he says.

Here is what he is seeing.

Like the top of the K-shape, the top of an E-shaped economy is made up of high income earners – consumers who continue to spend money even when prices are high. The top 20 percent of earners account for nearly 60 percent of all U.S. consumer spending, a recent study from Moody’s Analytics found.

“This is a top class [of earners] it’s doing well, it’s driving a lot,” Long says.

The difference between the K-shape and the E-shape: Income growth for middle-income earners closely matched that of high-income earners until it began to diverge toward the end of 2025, according to Bank of America Institute data released in February. As of January, the gap between high-income households and the rest of households in annual consumption growth reached its highest level since mid-2022, the bank reported.

Wealthy consumers aren’t just continuing to buy what they already have, even at higher prices. Some retailers and brands, particularly in the food and hospitality industries, are increasingly expanding their premium offerings to appeal to those spending money, Long says.

Premium credit cards like Chase Sapphire Reserve and AmEx Platinum recently raised their annual fees to $795, respectively, betting that more perks will appeal to more affluent cardholders. “Look at all these platinum credit cards,” Long says. “Almost every company is trying to improve the value chain, and you can see that in the earnings call.”

The plan has paid off for airlines, hotel brands, and food and beverage companies that have reported strong demand for premium and new premium offerings from the fall of 2025 – although sales of standard and premium products have been slightly reduced.

Consuming trends among middle-class Americans is where you start to see signs of an affordability problem, Long says. They are still spending on their interests and other target groups, but “the middle class is treading water to pay their debts,” he says.

Long calls this tier the “Costco economy,” meaning consumers are not yet in full panic mode, but are increasingly shopping at retailers like Costco and Walmart to get the most bang for their buck.

“It is clear that they are spending money fearlessly,” he says, “they feel like stretching every dollar they think they need to buy more, to do everything they can.” [to save].”

Regardless of where they shop, a growing number of American families are living paycheck to paycheck. About 24% of households had food expenses in excess of their income in 2025, according to data from the Bank of America Institute published in Nov. more than 95% of the money.

The wage-to-wage ratio for families is set to increase from 2023, the bank’s researchers found.

Middle-class families may be getting by right now, but Long says they’re experiencing stress in waves. “Not only are they facing high prices, but every few months, something goes up,” he says. Eggs, for example, are not as expensive in 2026 as they were in 2025, but in January, cattle prices rose 22% from a year ago, according to the Labor Department.

“It’s just whack-a-mole inflation,” says Long.

The bottom tier of the E-commerce economy is characterized by high credit card usage and Buy Now, Pay Later usage, Long says.

While middle and high income earners are more likely to use credit cards and sometimes carry balances on them, lower income earners are more likely to report carrying a balance. Among cardholders, 55 percent of those earning between $25,490 and $999 say they carried a balance at least once a month in the past year, according to the Federal Reserve’s latest Survey of Consumer Finances that was conducted in October 2024 and released in May 2025.

Half of cardholders who earn between $50,990 and $99,999 say they carried a balance at least once in the past year, compared to 38 percent of those who earn $100,000 or more.

In the case of Buy Now, Pay Later programs, adults who earn between $25 and $499, are more likely to have used loans in the past year, the Fed reports. Low-income earners, households making less than $25,000, were the most likely to report late payments on the Buy Now, Pay Later program, the data show.

A quarter of Buy Now, Pay Later users reported using loans to pay for groceries in 2025, up from 14% in 2024, found a February 2025 LendingTree survey.

The 2026 tax season could come as a lifeline for middle- and middle-income Americans, Long says. More than a third – 35% – of Americans who expected a tax refund say they will use a portion of it to pay off debt, a February 23 Intuit TurboTax survey found. But even a major refund is only a temporary fix for an ongoing problem, Long says.

Want to improve your communication, confidence and productivity at work? Take CNBC’s new online course, Master Your Body Language To Increase Your Influence.