Market Insights (Special Report) – The G-Shaped Economy: Why the Naysayers Keep Getting It Wrong

Milestone’s CIO, Steve Nielsen - Jun 16, 2026

The G-Shaped Economy: Why the Naysayers Keep Getting It Wrong

(Commentary from Milestone’s CIO, Steve Nielsen)

For more than two years now, a particular warning has echoed through financial media: the consumer is tapped out, the gap between spending and income is unsustainable, and the reckoning is just around the corner. And for more than two years, the consumer has refused to oblige. Markets have climbed, spending has held, and the predicted reckoning keeps getting pushed to next quarter.

We think it’s worth pausing on why so many smart, well-credentialed forecasters have been so consistently wrong on this point — because the explanation has real implications for how we position client portfolios.

The puzzle that has stumped the bears

Start with the data point that has driven analysts to distraction. In recent reporting, disposable personal income has actually fallen in some months while consumer spending has risen. On its face, that looks impossible to sustain. You cannot, the logic goes, spend more while earning less — not forever. Every permabear in the business has pointed at that gap and called it a ticking clock.

The veteran strategist Ed Yardeni — who has been broadly bullish for the better part of fifteen years and right far more often than not— has offered the most persuasive explanation we’ve encountered. His argument, which has been picked up widely in recent weeks, is that the bears are measuring the wrong thing. They are watching income. They should be watching assets. Yardeni calls it the G-shaped economy, where the G stands for generational.

What the “G” actually describes

The shape of it is this. Baby boomers — roughly 76 million Americans born between 1946 and 1964 — are sitting on an estimated $89 trillion in collective net worth, accumulated over four decades of rising home prices, rising stock markets, and falling interest rates. They are now retiring in historic numbers; well over a million additional workers filed for Social Security for the first time in the past year alone.

Here’s the mechanical effect. When a boomer stops drawing a paycheck and starts living off accumulated wealth, the income statistics weaken — their lost wages simply vanish from the wage data, dragging down measures like average hourly earnings. But their spending doesn’t weaken at all. They have decades of savings to draw on, and they are deploying it.

Crucially, they aren’t just spending on themselves. They are increasingly supporting their children and grandchildren. Nearly one in five adults aged 25 to 34 now lives in a parent’s home — a figure that bottomed near 8% around 1980 and has more than doubled since, returning to levels not seen since before the Second World War.

Source: Pew Research Center

Surveys suggest a striking share of younger adults now rely on family for help with basic expenses. When a 28-year-old lives rent-free while a parent quietly covers the bills, that money doesn’t disappear — it flows straight into consumption. The older generation’s balance sheet becomes the younger generation’s spending power.

This is the key insight, and it’s why standard models miss it: it isn’t a consumption bubble, it’s an intergenerational wealth transfer. Conventional economic models track income, not the drawdown of accumulated assets — so they literally cannot see the fuel that’s keeping the consumer engine running.

How this relates to the “K” everyone talks about

You’ve likely heard far more about the K-shaped economy — the now-familiar idea that the affluent are pulling away while everyone else falls behind. There’s tangible evidence for it. By various estimates, the top 10% of earners now account for close to half of all US consumer spending, and the wealth gap is stark: the bottom half of Americans hold a small fraction of national assets while the top decile holds the overwhelming majority. To put numbers on it: the bottom 50% of US households collectively own only around $9 trillion in assets, while the top 10% hold somewhere north of $100 trillion. The distance between those two figures is enormous.

Source: Board of Governors of the Federal Reserve System

We don’t think the G and the K are in conflict — they describe the same economy from different angles. The K describes the distribution: wealth and spending power concentrated at the top. The G explains the mechanism and the resilience: that concentrated wealth is held disproportionately by older households, and it is actively flowing downhill through families in a way that sustains aggregate demand even as the income data looks soft.

Where we’d push back on the consensus is on which force is doing the heavy lifting right now. The popular K-shaped narrative tends to arrive with a pessimistic conclusion — fragility, inequality, an economy one shock away from trouble. The G-shaped lens suggests something the bears have badly underweighted: this dynamic has staying power. The bears have been right about the income numbers for at least two years. They have been wrong about what those numbers mean.

Why this matters for markets

Two further points reinforce the constructive case. First, market breadth has improved markedly — a large majority of S&P 500 companies are now seeing forward earnings rise year-over-year, and aggregate earnings growth this year is tracking at a pace you’d more typically associate with a recovery coming out of recession, not the middle of an expansion. That kind of breadth, sustained through genuine geopolitical stress, points to underlying resilience rather than a narrow, fragile rally.

Second, and more simply: if the single biggest source of doubt about this expansion — the “unsustainable” consumer — turns out to rest on a measurement error, then a great deal of the bearish case dissolves with it. An expansion that the skeptics keep declaring nearly over, but which keeps proving them wrong, can run a good deal longer than sentiment suggests. We would not be surprised to see this secular bull market extend for years rather than quarters.

The honest caveats

We’d be doing you a disservice if we presented only the bullish half of this. Even the strategists making the G-shaped case are clear about its limits, and so are we:

A portfolio is not a paycheck. The wealth funding all this spending is real, but it’s finite and unevenly distributed. Boomers are not immortal, and when the wealth-transfer flow eventually slows, the consumption it has been supporting loses some of its fuel. The argument isn’t that the consumer is permanently invincible — it’s that the consumer is fine for longer than the income data implies.
Concentration cuts both ways. If spending power is concentrated among older, asset-rich households, then the economy becomes more sensitive to a serious, sustained decline in asset prices. A genuine market correction would hit the very households now doing the spending.
None of this resolves the longer-term questions around government debt, deficits, and demographics. Those remain, and we watch them closely. The G-shaped dynamic explains the present resilience; it does not repeal arithmetic.

Our takeaway

Our job is to position portfolios for the economy as it actually is, not the economy the negative headlines insist is coming. For years the headlines have been wrong about the American consumer, and the G-shaped framework is the most coherent explanation we’ve seen for why. We remain constructively positioned, mindful of valuations and concentration risk, and focused — as always — on quality, diversification, and time horizon rather than on predicting the next turn.

As one of the strategists we follow put it well: investing success comes far less from guessing which disruption arrives and when, and far more from consistently aligning a portfolio with sensible risk-and-reward trade-offs. That’s the discipline we intend to keep.

As always, please reach out to discuss how any of this applies to your specific situation.

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