A growing number of analysts, executives, and policy observers are pointing to a “split-path economy” to describe the widening gap between higher- and lower-income Americans. The concept highlights how wealthier households continue to benefit from rising asset values, while those with lower incomes experience weaker wage growth and persistent cost pressures.

This framework has gained traction because it reflects the contradictory signals emerging from the broader economic landscape. Overall expansion remains steady, yet job creation has cooled and unemployment has edged higher. Consumer spending is still increasing, but sentiment surveys show a decline in household confidence. Meanwhile, investment into AI-related infrastructure is accelerating even as manufacturing activity softens and residential real estate remains sluggish. The stock market is performing strongly, but wage growth has slowed across much of the labor force.

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The split-path narrative also underscores the affordability strain facing middle- and lower-income households. Inflation has eased from previous highs, but cumulative price increases continue to erode purchasing power. While higher-income groups benefit from rising equity markets and property values, lower-income Americans remain more sensitive to price levels in housing, food, and everyday goods.

During the post-pandemic recovery, wage gains were briefly stronger for lower-income workers due to labor shortages and rapid rehiring. However, as economic momentum cooled, the trend reversed. Recent data shows that inflation-adjusted wage growth for lower earners has weakened significantly, while higher earners have experienced more stability. This divergence is reflected in spending patterns: higher-income households continue to increase expenditures at a healthy pace, while spending growth among lower-income groups has slowed sharply.

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Businesses are adapting their strategies in response to this shift. Many companies are pushing premium products targeted at affluent consumers while simultaneously introducing smaller or lower-cost versions for price-sensitive shoppers. Luxury travel, upscale consumer goods, and high-end brands are seeing stronger performance, while mass-market retail is increasingly dependent on discount-driven demand.

The rapid expansion of AI infrastructure has further contributed to the imbalance. Major technology companies have benefited from rising stock valuations, but the associated job creation has been relatively minimal. Gains are concentrated among investors rather than workers.

Economists warn that an economy driven primarily by higher-income households creates vulnerabilities. If employment conditions weaken further, a broad pullback in spending could spill over into corporate revenues and pressure investment activity. Others argue that policy changes, such as potential tax adjustments or shifts in monetary strategy, could influence the trajectory in the coming year.