Bank of America reports US K-shaped economy is converging as lower-income spending catches up

For the past year-plus, the US economy has operated like a two-speed machine. Wealthier Americans kept spending with abandon while lower-income households pulled back, creating a K-shaped split. Bank of America now says that split is closing.

The bank’s research arm, the Bank of America Institute, published its August 2026 Consumer Checkpoint report with a title that does most of the heavy lifting: “The Great Convergence.” The core finding is that lower- and middle-income households are experiencing faster spending growth than their higher-income peers, reversing a trend that had persisted for more than a year.

The numbers behind the narrowing

Bank of America’s analysis draws on its massive trove of actual credit and debit card transaction data. In July 2026, overall card spending grew 5.0% year-over-year, down from the 6.3% growth recorded in June.

Strip out gasoline purchases and spending growth came in at 4.3% year-over-year for July.

The top 5% of earners continue to outspend at elevated rates, buoyed by strong balance sheets and rising asset prices. But the gap between that top tier and everyone else is no longer widening, and the distance between the middle and the bottom has meaningfully compressed.

What changed for lower-income households

The report points to improving financial health metrics as a key driver of the convergence. A growing proportion of households are now paying off their credit card balances in full each month, a signal that consumers aren’t just spending more but doing so from a position of greater stability.

Liz Everett Krisberg, head of the Bank of America Institute, emphasized that the data reflects a convergence not just in spending patterns but in broader financial wellbeing, marking a positive turnaround after a prolonged period of divergence.

Earlier reports from the Institute throughout 2026 had flagged tentative signs of narrowing. The August update is the strongest confirmation yet that those early signals were the real thing. The trend appears to have its roots in mid-2025, when Bank of America’s card data first started showing modest improvements in spending resilience among lower-income groups.

Why this matters for markets and the broader economy

The moderation in overall spending growth from 6.3% to 5.0% in a single month is worth watching. A broadening consumer recovery is encouraging, but it’s happening alongside a deceleration in total spending velocity.

Perhaps the most telling detail in the entire report is the credit card payoff data. When more households can clear their balances each month, it means the spending they’re doing isn’t being funded by mounting debt.

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