As nearly 40% of Americans remain locked out of homeownership, a growing upper-middle class is redirecting higher wages toward travel, upgraded retail experiences, and other attainable luxuries—a shift that reveals both economic progress and deepening inequality in what analysts are calling the "premium economy" era.
The biggest economic buzzword of the last few years is "K-shaped," used by CEOs, economists and lawmakers to describe the divergence between the haves and have-nots in America's economy. But retail analyst Simeon Siegel of Guggenheim Partners argues this framework misses a crucial dynamic. "People have been waiting to call the death of consumer, but the consumer is still spending," Siegel said. "It's much easier to label everything as a K-shaped economy."
Who Is Moving Up—And Who Is Left Behind
The upper-middle class grew from 10% of families in 1979 to 31% in 2024, and this group's share of income also doubled, according to recent research from the American Enterprise Institute. A family of three earning $133,000 to $400,000 per year was defined as upper-middle class. The proportion of families classified as poor and lower-middle class also fell over the past five decades. "The whole distribution has moved up," said Scott Winship, a senior fellow at the American Enterprise Institute and co-author of the study. "It undercuts the idea that there's hollowing out of the middle class."
Yet despite this upward mobility, many feel they're falling behind. Home prices have ballooned to five times the average median income, trapping people in place and pushing homeownership out of reach for millions. Nearly 40% of Americans do not own their home, so they missed out on soaring home values after the pandemic. The war in Iran is making conditions worse by squeezing low-income households that spend the largest portion of their income on gas and necessities.
Where the Money Is Going
More Americans have moved up from basic economy to what might be called premium class—able to afford nicer flights, better groceries and fancier experiences, but unable to reach the security of home ownership and retirement that previous generations enjoyed. The new members of the upper-middle class are redirecting their higher wages to spending on the products and services they can afford. Travel, concerts and other fun activities have replaced home ownership in the "premium economy" economy.
Retail sales have climbed for three consecutive months recently, bolstered by a healthy labor market and higher tax refunds. "The consumer is still spending and working," Ameriprise Financial chief market strategist Anthony Saglimbene said in a note to clients last week. "If inflation pressures ease at some point, the 'K-shape' in the economy could begin to flatten." This summer's travel season is expected to surpass the last two, according to a recent Bank of America survey, and only roughly 10% of survey respondents are considering canceling their trip over high gas prices.
Winners and Losers in Retail
This shift has punished companies competing entirely on price, such as Spirit Airlines and Dollar General, while lifting the likes of Walmart and United Airlines that consumers perceive as higher quality. Last year, Delta and United accounted for more than 90% of the airline industry's profits. Spirit Airlines shut down its operations in part because many of its customers grew willing to pay $30 or $40 more for a little extra legroom, free snacks and better service at larger carriers like United and Delta.
Walmart has also peeled off lower-income customers from competitors like Dollar General. The two retailers share customers and have thousands of stores located close to one other. But Walmart has upgraded in recent years—cleaning up stores, sharpening prices and adding speedy curbside pickup and home delivery—and this strategy helped it grab market share from Dollar General. Hilton expects its "premium economy" hotel brands such as Spark by Hilton to grow in the coming years.
Hilton CEO Chris Nassetta recently predicted the U.S. economy will enter a "C-shaped" phase in the next few years, where consumer spending is more evenly balanced across income levels. Lower inflation and interest rates and AI investments will eventually help low and middle-income consumers gain spending power and flatten the K-shape, he said. "You are going to see this convergence."
Why This Matters:
The "premium economy" reveals a troubling paradox: rising incomes for many Americans have not translated into the economic security that defined middle-class life for previous generations. While the upper-middle class has expanded significantly since 1979, the fundamental pillars of long-term stability—homeownership and secure retirement—have drifted further from reach even for families earning six-figure incomes. This gap between wage growth and housing affordability, exacerbated by factors like the war in Iran driving up essential costs for low-income households, underscores the need for stronger public policy interventions in housing markets and retirement security. Without structural reforms to make homeownership accessible and retirement viable, consumer spending on short-term upgrades may mask deeper anxieties about long-term economic mobility and intergenerational equity.