The Dreaded K-Shaped Economy

The K-Shape Index (KSI)—a 0–100 measure of recovery inequality built from employment divergence, GDP–jobs gaps, long-term unemployment, sectoral dispersion, and wealth concentration—captures this divide. A score above 60 signals a sharply unequal recovery.

The U.S. has repeatedly experienced K-shaped economy recoveries, where GDP rises while households diverge. Past cycles — 1990–91 (KSI 54), 2001 (64), 2007–09 (90), and 2020–21 (90) — all showed the same pattern: output rebounded faster than employment, mid-skill jobs disappeared, and wealth concentrated at the top. The 2020–2025 period intensified this trend as AI adoption boosted productivity in tech, finance, and healthcare while routine administrative and service jobs contracted. Long-term unemployment hovered near 25% of all joblessness, wage growth clustered in the top 20%, and AI-driven equity gains widened wealth inequality.

At the household level, macro stability has masked growing micro stress. Total debt rose from $14.5T → $18.4T, including $1.66T in auto loans and $1.3T in credit card balances with rising delinquencies. Debt-to-GDP fell to ~68%, its lowest in two decades, yet affordability deteriorated as existing-home sales dropped from 6.1M → ~4M, home prices climbed ~40% above 2019 levels, mortgage payments rose 50–70%, and first-time buyer age reached 36–38. High-income, asset-owning households remained stable while lower-income and debt-heavy households faced increasing pressure.

The U.S. enters 2026 with a KSI of 62, up from 55 in 2025. AI is powering growth at the top, while affordability and credit strain tighten at the bottom—creating an economy defined by macro stability and micro fragility. A soft landing could pull it toward 45, while an adverse scenario marked by faster AI displacement and worsening credit stress could drive it near 80.