• Lower-income jobs grew 3% YoY in July, outpacing 1% growth for higher-income workers.
  • After-tax wage growth for lower-income households reached 5.2%, surpassing 4.2% for higher earners for the first time since December 2024.
  • Bank of America suggests the trend supports consumer spending without stoking inflation.

A Shift in the Labor Market

Bank of America's latest data reveals a notable shift in the U.S. labor market, moving beyond the K-shaped recovery that has characterized the post-pandemic era. According to the Bank of America Institute, lower-income households experienced 3% year-over-year job growth in July, significantly outpacing the 1% growth seen among higher-income workers. Even more striking, after-tax wage growth for lower-income earners reached 5.2%, topping the 4.2% recorded for their higher-income counterparts. This marks the first time since December 2024 that lower-income households have seen faster wage growth.

“This is a meaningful change,” said a senior economist at BofA, who asked not to be named because the findings have not been publicly released. “We're seeing a broadening of the labor market's gains, which is a positive sign for overall economic resilience.” The institute's analysis draws on anonymized aggregate data from millions of BofA customer accounts, providing a real-time snapshot of income dynamics.

Implications for Spending and Inflation

The narrowing wage gap carries significant implications for consumer spending and inflation. BofA notes that stronger wage gains among lower-income households, combined with solid productivity growth, support consumption without necessarily fueling price pressures. This is because lower-income earners tend to spend a higher proportion of their income, boosting demand, while productivity gains help offset the cost of higher wages for businesses.

“The data suggest that the economy is on a more sustainable path,” the economist added. “Wage growth is broad-based, but it's not running hot enough to alarm policymakers.” Indeed, the Federal Reserve has been monitoring wage trends closely as it balances its dual mandate of maximum employment and price stability.

Background and Context

The labor market has been a focal point for investors and policymakers as they assess the likelihood of a soft landing. Earlier in the recovery, higher-income workers disproportionately benefited from job gains and wage increases, leading to concerns about a K-shaped recovery where the wealthy thrive while others lag. BofA's latest figures suggest that dynamic is evolving.

For instance, while higher-income jobs grew just 1% annually in July, lower-income sectors like leisure and hospitality have been adding workers at a robust clip. This has helped tighten the labor market for lower-wage positions, pushing up pay. Meanwhile, white-collar industries have seen slower hiring as companies adjust to higher borrowing costs and a normalizing demand environment.

Market Reaction and Outlook

Investors have taken note of the shifting trends. Treasury yields remained stable following the report, as traders weighed the implications for Fed policy. “The data reinforces the narrative that the labor market is cooling gradually, but not deteriorating,” said a fixed-income strategist at a major brokerage. “That's consistent with a soft landing, though risks remain.”

The BofA Institute plans to publish the full report later this month, which will include additional details on spending patterns and savings rates across income groups. Early indications suggest that lower-income consumers are maintaining their purchasing power, which could provide a buffer against any economic slowdown.

Not everyone is convinced the trend will persist. Some economists point to potential headwinds, such as the resumption of student loan payments and elevated credit card debt, which may disproportionately affect lower-income households. “The data is encouraging, but we need to be cautious about extrapolating too much from a few months of readings,” cautioned another analyst.

Correction: An earlier version of this article misstated the time period for the first time lower-income wage growth topped higher-income. It is December 2024, not January 2025.