April Market Pulse Q&A: The Experts Answer Your Questions on Economic Trends, the K-Shaped Economy, and More

Highlights: 

• The K-shaped economic divergence is driven by consumers' unequal ability to absorb inflation, with wealth growing at the top and the bottom segment increasingly using credit for basic needs as savings erode.
• Lenders can proactively forecast credit losses by shifting from lagging indicators to leading data insights, such as tracking payment velocity (full vs. minimum payers) and monitoring alternative data, like customer visits to financial hardship FAQs.

During the April Market Pulse webinar, our panel, including Dr. Amy Crews Cutts, President and Chief Economist of AC Cutts & Associates, Emmaline Aliff, Advisory Leader at Equifax, and Dave Sojka, Senior Advisor at Equifax, answered the audience’s burning questions. 

Below are their answers on questions around economic trends, the K-shaped economy, and more.

Q: Given new stressors, such as global conflict and gas prices, how else may consumers respond? We are already seeing them pull back and trade down in many industries. Any thoughts on other things people may do to address these additional pressures?

Dr. Amy Crews Cutts, AC Cutts & Associates: It comes down to the individual. Some people may try to pick up a second job, gig work, or some other stream of income, but you can only do so much substitution. If you have a high utility bill, you might be able to survive for a month by dipping into savings, but, at some point, you have to make a choice. Do you run the air conditioner or do you make other choices?

So there is some potential that we may see a weakening demand for homebuying. The numbers have been a little uneven for the last couple months, so that is one way. We may see further reduced demand for new and used cars as that is a big discretionary purchase. You may need a new car as your car may be wearing out, but the timing might give you some options there. 

They could run up balances on their cards, but as Dave [Sojka] said earlier, we’re not seeing a significant increase in utilization.

These are the things that I would watch out for in the coming months, but if you are in a discretionary services or products industry, you may see more cutbacks. With specialty coffees, for example, we may not have one each day. Instead, we may do it once a week. There may also be a curtailment of streaming services and other similar products, but those are very small changes as opposed to something very big that might really move the needle financially.

Q: How much of the K-shape comes from the difference in inflation, and how much of it comes from the difference in real expenditure growth?

Emmaline Aliff, Equifax: When we think about the K-shaped divergence, it's not necessarily driven by experiencing different rates of inflation, but rather, how are consumers able to absorb it? And what we see on that is, are balances rising, utilizations rising, and is that different on the upper end and the lower end? 

So, I think about inflation as being kind of a pressure point, and specifically, is it outpacing any form of wage growth, to understand consumer cash flows? This is especially true in the lower end, where we know that savings are being eroded and are using credit for some of the basic needs that might exist. 

And then from an expenditure standpoint, it really helps to define what the shape of a distribution can look like. So when we think about the upper arm, where most of the wealth exists, individuals are mostly being pushed into that via stocks, home equity, or even from a liquid credit standpoint, especially if their growth is outpacing inflation, sustaining any form of robust discretionary spend. And where the bottom ends, that power actively is in contraction. 

Q: Can you expand a bit more on how the middle class is doing and where they sit in the K-shape?

Aliff: When we think about that traditional middle class, we define it as the middle 70% above a 50 on Market Pulse Index and below an 80, they do sit squarely within that, and the group has decreased by just over 6% since mid-2023. So we do know that there is a lot of movement that has been occurring. Now, when we look at things like the center not necessarily being stable, we're trying to see where they end up moving, and where the stability and equilibrium will evolve, and that's when we would start talking about different types of economic shapes.

Q: How will the economic and trade impacts of the current global conflict around oil impact the next two years?

Cutts: You know when we came out of the pandemic, we ran into supply chain disruptions, right? The pandemic shut down, or slowed, a lot of factories and transportation networks. When things started to grow again, people were eager to move, ship, and manufacture things and it took a long time for those supply routes to get up and running again, so they could move forward. 

This time, I think we're going to be in a similar position, meaning we're going to see supply chain disruptions. Even if the necessary passages opened immediately, how long would such a resolution last? And I believe that insurers are going to be very wary of anything passing through the region until the current tensions have largely settled. That puts a tremendous strain on global supply chains, along with the continued disruptions caused by tariffs. So companies are still struggling with where to source materials and how to get it moving. I think that we will see, at least for the next two years, that lingering supply chain constraint and, as a result, rising prices.

I don't know how the Federal Reserve is going to respond to that, though it may depend on the labor market. So, that's the main thing that I would focus on. It's not as easy as saying “the conflict is over” as it is going to take a while for those other markets to really get moving again.

Q: What methodologies or data insights are proving most effective for lenders to proactively forecast the future trajectory of credit losses, specifically within credit card portfolios, encompassing both delinquencies and contractual losses, as well as an anticipated rise, and personal bankruptcies among these newly stressed consumer segments?

Dave Sojka, Equifax: I'm sure you've tried a bunch of these as well, but I'll give you a couple of examples. So moving from a lagging indicator to leading data insights, such as payment velocity. Are you tracking people moving from full payers to minimum payers, or vice versa? On the bankruptcy front, early warning signals for Chapter 7 and 13. Obviously, those increased earlier this year. Lenders are starting to look at alternative data to monitor some of this, and some of it might be customer visits to financial hardship, debt restructuring, or bankruptcy FAQs on your website. So, those are just a couple of suggestions.

Q: What is the one thing that consumers aren't willing to give up, even in a challenging economy?

Sojka: Well, I still like my premium cigars, but that's not what you asked. So, I'll say the modern-day consumer won't disconnect, meaning their smartphone is the one thing they'll keep charged and connected. And I would also say that they are not looking at fine dining—they’re looking at the big night in.

Q: What's going on with the performance of student loans?

Sojka: I'd say the overall trend is up. But, in terms of detail, 90 day plus balances have dipped from May 2025 to our most recent observation period in February 2026. And that's decreased from 18.7% down to 16.6% for balances. But I would keep a close eye on the recent months. There is a subtle increase. But it's very small right now, so keep an eye on that.

Q: Do you see the economy moving more towards an L-shaped economy versus a K, such as the migration of the middle class away from the middle at a steeper angle?

Aliff: So, when we think about the definitions of these shapes, what does the shape look like from a distributional standpoint? And we do see that the data does clearly continue to show that widening K, and earlier, we showed the view on the top 10% growing by 32%, and the bottom 20% growing by 11%. 

An L-shaped economy, as I understand it, is driven by some steep drop and then stagnation. When we think about what is happening, the wealth continues to grow at record highs, and the distribution is highly polarized with very different experiences for the people on both the top and the bottom occuring. And I think that the middle class in particular is where the extremes are starting to get fed by the movement in that group. And some of that is going to come down to where do they have liquid credit access, especially if they're unable to grow wealth or income?

Q: What is the impact of rising oil prices on rising consumer costs and consumer credit?

Sojka: Amy mentioned some of the oil impacts on the consumer, but I've got a small business story for you. So I recently spoke to a bank that specializes in small gas cards for trucking companies, and they have observed a recent surge in requests for line increases. This is, obviously, attributed to the sudden rise in the cost of diesel fuel, which is impacting a significant portion of their clientele., The challenge now is how do they develop an appropriate risk assessment strategy for these sudden collective increases?

Q: What are some new housing trends from pre-COVID to present?

Cutts: There was a great article in the Wall Street Journal a little earlier this week that talked about how new homes are being made more affordable by swapping out materials. I remember being a kid in the 1980s, seeing houses being built and my parents lamenting, saying “oh they just don’t build houses like they used to.” At the time, there was very high inflation and interest rates, and they were working on affordability. So, many homes were built not only smaller, but with much lower quality components and I don't mean that to say they are being built cheaply just to gouge the buyer, but that they were not using a heavy insulated door interior to your house and instead are using an uninsulated door, meaning your house will be noisier. But, it’s a door and it closes, so it’s fine.

And when you have the income at a later time, you could replace that with a higher quality door. So many starter homes traditionally were built with lower quality materials, and then, people could improve their living space over time by putting in better things. For example, they may get rid of the formica and put in granite countertops. In today’s market, we’ve gone back to this model where, instead of homes starting with the granite countertops, they are either using thinner levels of those materials or going back to some of the less expensive materials. 

There are still not enough houses being built in places that people want to live. There are some pushes to increase affordability with loosening laws around accessory dwelling units (ADU), meaning you could add a grandma or mother-in-law suite on your property and could have a renter or a relative, like an adult child or parent. So, we are seeing more of that push with the understanding that we can’t all have a 5,000 square foot home on an acre of land as it is not sustainable and that we need to build more housing at all levels. I think that's the main housing trend that I'm seeing right now that's going to greatly affect affordability and meet the demand.

Q: What are the VantageScore clusters for the separate segments of the K-shaped economy?

Aliff: In terms of what we're seeing with respect to credit scores in the K-shaped economy and how those have been behaving, it's a very interesting picture. While we have seen, on the lower end, some expansion as the bottom 20% expanded by 11%, it has not, for the most part and in the last two years in particular, really been driven by credit score. Once an individual has moved into that lower tier, their credit score can’t necessarily go lower as they are already sitting in that position. 

And if we go back about six years or so, as defined by credit score alone, the subprime population has shrunk by an absolute percentage of 6%, so there's a much higher concentration of delinquencies that are occurring. And if we look at an example of subprime auto, it is at the top of the payment hierarchy even though it is near an all-time high for where subprime delinquencies are occurring. And, looking back six years and then up until even more recently, specifically in the near-prime and subprime segments, we have seen some movement and that’s where we expect the movement to be occurring still.

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Source:

Equifax, April 2026 Market Pulse Webinar