President Donald Trump’s second term in office has been fraught with economic uncertainty.
In 2025, his worldwide tariff war upended the global economy and added a fresh financial burden to millions of Americans. This year, the Iran war has depleted U.S. oil reserves, disrupted trade through the Strait of Hormuz, and forced gas prices higher, though they have declined toward more reasonable levels in recent weeks, according to Trading Economics.
Consumer sentiment fell for the third straight month in May, according to the May University of Michigan consumer survey, with the cost of living continuing to be Americans’ top economic concern. Even Trump’s political base is acknowledging the economic uncertainty, as Republicans reported their lowest sentiment reading since he became President.
But self-reported consumer sentiment is only one data point.
Analysts at Bank of America have access to bank deposit data, and while Americans’ bank accounts are showing strength now, the firm is worried that elevated deposits are only transitory. The second half of the year could be extremely rough.
Economic tailwind from taxes is transitory, BofA says
Changes to the tax code backed by the Trump administration have put more money in Americans’ pockets since he returned to office.
Household deposit balances increased across all income groups during the early part of the year, “boosted partly by larger tax refunds, with the biggest relative increases for lower-income households,” Bank of America analysts said in a note viewed by TheStreet.
Lower-income households have deposit balances that are nearly 70% higher than they were in 2019 and nearly 15% higher than they were in January 2026.
Middle-income earners have seen increases of about 60% and nearly 10% over the same time period. Higher-income earner deposits are nearly 40% higher than in 2019 and less than 5% higher than in January.
However, while that increase provides a near-term buffer for families struggling with stubborn inflation, high gas prices, and an ongoing war, that buffer is weakening every day.
“For younger and lower-income households, these deposits could be drawn down faster this year, reflecting mounting cost pressures,” BofA’s David Tinsley said in the note.
“Much will depend on whether the upturn in the labor market and improved lower- and middle-income wage growth we have seen in Bank of America internal data persist through the summer.”
Despite deposit data showing elevated levels, BofA’s own survey shows that about half of lower-income households describe their finances as “poor” or “terrible.”
BoA predicts that “lower gasoline prices, combined with higher deposits, could be a mild tailwind to narrowing the ‘K’ shape in spending growth.”
What is a K-shaped economy?
In the simplest terms, a K-shaped economy is what happens when the rich get richer, and the poor get poorer.
The people in the upper arm of the “k” see their wealth increase, while those in the bottom half experience declining income.
Luxury spending has been one of the few Covid casualties that has stubbornly lagged a broader recovery in other consumer items. In fact, according to BofA, luxury spending had been down for over three years before it started showing signs of recovery.
But monthly data through March showed that luxury spending, driven by higher income earners, increased through March at a rate of 12%.
Meanwhile, as the average American worker struggles, corporations are benefiting from some of the highest worker productivity in years.
According to BofA, since the Covid pandemic, national accounts data have shown a sustained increase in productivity, which is easily reflected in rising corporate profits.
However, at the same time corporate profits are rising, labor income has steadily fallen as a share of U.S. GDP, creating the K shape that could define the U.S. economy for the foreseeable future.
“For now, higher profits relative to wages are yet another driver of a K-shaped economy, as higher-income consumers tend to be more exposed,” according to BofA Securities, as TheStreet reported.
“Measured labor productivity (that is, output per hour) continues improving since the end of the pandemic and is mostly concentrated in the services sector rather than manufacturing. Interestingly, real labor income is not growing at the same pace,” according to BofA.
“In other words, productivity gains translate into higher corporate profits. This dynamic implies a higher share of the GDP pie going into corporate profits relative to labor income.”
Related: Bank of America identifies loudest K-shaped economic signal yet
