The K-Shape

The Atlanta Fed Wage Growth Tracker for the bottom income quartile, minus the headline CPI inflation rate, sits at 2.2 points in 2024. That is the gap between what lower-income workers' wages are growing at and what prices are growing at. Higher-income wage growth has comfortably outpaced inflation through the same period. The gap between the two groups widened sharply in 2022 and has remained wide since.

This divergence is the mechanism behind what shows up in other indicators as household distress. The Squeeze tracks the share of U.S. households spending nearly all of their income on necessities, and that share has stepped up year over year since 2023. When wages at the bottom of the distribution grow more slowly than essential costs, the shortfall does not appear as a recession. It appears as slowly deepening pressure on lower-income households.

The economic recovery from 2020 onward was initially described as K-shaped — a temporary phenomenon expected to resolve as the labor market tightened. Five years later, the K has become structural. Pink Slips announcements have stepped back up, disproportionately affecting lower-wage workers in government and support functions. And The Warning Light — running below the Conference Board's recession threshold — suggests the pressure is more likely to deepen than ease.