A K-shaped economy — one branch of which goes up, the other down — appears to best epitomize the economic reality faced by many Americans this year. It is in many ways a tale of two economies.

Even as some segments of the population are holding up well, others are facing a recession-type environment. Geographically, there now appears to be a notable divergence. According to economist Mark Zandi, around 21 states (mainly rural and industrial ones) and the Washington, D.C. area are currently either in a recession or close to entering one.

Higher income and more experienced workers with relative job security, equity-rich homeowners with paid-off homes or low-rate mortgages, and baby boomers with growing nest eggs are propping up consumer spending. The top 10 percent of households by income are now responsible for about 50 percent of aggregate consumption expenditure.

Private sector investment is currently dominated by AI hyperscalers (such as Amazon, Google, Meta and Microsoft), who are aggressively pouring vast amounts into data centers. Outside of the AI-related sectors, business investment has been hurt by tariff-related uncertainties. Corporate earnings have held up so far as companies focus on cost-cutting and efficiency measures.

Meanwhile, new entrants........

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