The Numbers Nobody's Putting in the Headline

Economists at the Federal Reserve Bank of New York published fresh analysis on May 1, 2026, using a panel of 200,000 consumers to track exactly who is driving retail spending growth. The answer is uncomfortable.

High-income households — those earning more than $125,000 per year — are the engine. Middle-income households ($40,000–$125,000) are a distant second. Low-income households (under $40,000) are at the bottom, and the gap is widening.

This is the Federal Reserve's own data.

What 'Robust Consumer Spending' Actually Means

Every major financial outlet has been running headlines about strong retail sales in 2025 and into 2026. The problem is what they're leaving out: the stratification underneath.

According to the National Retail Federation's Chief Economist Mark Mathews, writing in February 2026, the bottom seven income deciles saw negative year-over-year growth in discretionary spending. Seven out of ten income brackets are spending LESS on non-essentials.

The overall number still looks positive because the top 20% of spenders account for over 60% of total discretionary spending. The rich are spending more. Everyone else is pulling back. When you average those together, you get a headline that says 'consumer spending up,' which obscures the underlying weakness.

The Fed's Breakdown: It's Wealth, Not Wages

The New York Fed researchers — Rajashri Chakrabarti, Thu Pham, Beck Pierce, and Maxim L. Pinkovskiy — examined wages, inflation, and wealth across income groups since 2023.

The findings:

• Wealth has grown the most for high-income households — stocks, home equity, investment portfolios.
• Inflation has hit low-income households hardest — because they spend a larger share of income on food, gas, and other necessities that have spiked.
• Wages show a mixed picture, though the Atlanta Fed's Wage Growth Tracker shows highest earners pulling ahead of lowest earners in hourly wage growth.

Low-income workers aren't struggling because they're making bad decisions. Their real purchasing power is being eaten by inflation on the things they can't avoid buying, while their wages aren't keeping up. Wealthier Americans watched their asset values climb and kept spending on everything.

Both Necessities AND Luxuries Are K-Shaped

The New York Fed data shows the K-shape isn't just for discretionary purchases. It holds for food and gas spending too.

Real spending on necessities has declined for most income groups since January 2023. But the decline is sharpest at the bottom. Low-income households aren't buying less food because they got healthier — they're buying less because they can't afford more.

Combined with food prices up 13% year-over-year and corn up 100%, the picture is clear: the people least able to absorb price shocks are absorbing the biggest ones.

What Mainstream Media Is Getting Wrong

Left-leaning outlets have been using the K-shaped economy data to push for more government spending programs — without acknowledging that a decade of easy money policy inflated the asset bubble that's now benefiting the wealthy and punishing everyone else with inflation.

Right-leaning outlets have largely ignored this data, preferring to tout overall GDP and retail sales numbers as vindication of deregulation and tax policy. Strong top-line numbers that mask collapse at the bottom aren't a win — they're a warning.

The Federal Reserve's own interest rate policies post-COVID inflated asset prices for the wealthy while the resulting inflation punished lower-income workers. The Fed is now publishing research documenting the inequality its own policies helped create.

The NRF's Bottom Line

The National Retail Federation expects continued top-line retail growth into 2026, according to Mathews. But the NRF is also being unusually candid: 'It is clear that not all segments of the consumer will be driving this growth.'

Translation: the working class is tapping out.

What This Means for Regular People

If you're earning under $40,000, the data confirms you're not imagining it — your dollar is buying less, your discretionary budget is shrinking, and the 'great economy' you keep hearing about isn't your economy.

If you're a small business serving middle- or lower-income customers, your market is weakening regardless of what the aggregate numbers say.

For policymakers citing strong consumer spending as proof everything is fine: the number being cited is misleading. The K-shape is now documented Federal Reserve data. Ignoring it isn't optimism.