With more consumer companies preparing to report third-quarter earnings this week, Wall Street will be watching for signs of a bifurcated or “K-shaped” economy as consumers diverge in their spending behaviors.

There have been increasing signals that wealthier Americans are spending more while lower-income Americans are significantly paring back their spending. Lower-income consumers have been hit hardest by rising inflation and escalating prices on essentials, with September’s consumer price index report indicating a 0.3% increase on the month, putting the annual inflation rate at 3%.

Shortly after the CPI report was released, the Federal Reserve on Wednesday approved its second straight interest rate cut, lowering its benchmark overnight borrowing rate to a range of 3.75% to 4%.

Meanwhile, the country is entering the fifth week of the government shutdown, with many federal workers going without pay.

The Census Bureau estimated there were 35.9 million people in poverty in 2024, the most recent available data, with the weighted average poverty threshold for a family of four coming in at $32,130. The median household income, meanwhile was $83,730 last year, according to the bureau.

The top 10% of households saw their income increase 4.2% between 2023 and 2024, but there was no meaningful change for the bottom 10% of households, the bureau said in September. There were approximately 33 million households in the top 10% of earners and another 33 million in the bottom 10% of earners as of last year.

Consumers with the highest purchasing power have benefited from stock market rallies and rising home values. Data from JPMorgan‘s Cost of Living Survey found that higher-income consumers reported stronger economic confidence readings for the next year.

Recent earnings reports from companies touching all corners of the economy have indicated the K-shaped trend is beginning to take hold. This week, companies like Yum Brands, McDonald’s, E.l.f. Beauty, Tapestry and Under Armour are preparing to release quarterly earnings reports and could report similar trends.

Last week, Chipotle reported it’s seeing consumers who make less than $100,000 a year, which represents roughly 40% of the company’s customer base, spending less frequently due to concerns about the economy and inflation. CEO Scott Boatwright said the company is seeing “consistent macroeconomic pressures” with a 0.8% decline in traffic for the quarter.

Coca-Cola said in its third-quarter earnings that pricier products like Topo Chico sparkling water and Fairlife protein shakes are driving its growth. Procter & Gamble reported similar results, saying wealthier customers are buying more from club retailers, which sell bigger pack sizes, while lower-income shoppers are significantly pulling back.

And some of the companies reporting this week have already indicated they may be seeing similar behaviors. In early September, McDonald’s CEO Chris Kempczinski told CNBC’s “Squawk Box” that the chain’s expansion of its value menu was due to a “two-tier economy.”

“Traffic for lower-income consumers is down double digits, and it’s because people are either choosing to skip a meal … or they’re choosing to just eat at home,” he said.

The trend isn’t limited to just food and beverage, either. In the autos world, consumers who can afford to buy new vehicles are on a spree, while those who are more price constrained are sitting out. Defaults and repossessions are on the rise while the average price for a new vehicle is setting records.

And in the service industry, Hilton earlier this month reported that it saw a drop in revenue for its affordable brands while its luxury offerings performed exceedingly well. Still, CEO Christopher Nassetta told CNBC last month that he doesn’t expect bifurcation to last much longer.

“My own belief is that as we look into the fourth quarter and particularly into next year, we’re going to see a very big shift in those dynamics, meaning, I don’t think you’re going to continue to have this bifurcation,” Nassetta said. “That’s not to say I think the high end is going to get worse or bad. I just think the middle and the low end [are] going to move up.”

Correction: This article has been updated to correct the month of the CPI report.

Kimberly-Clark announced Monday it’s struck an agreement to buy Kenvue in a deal valued at $48.7 billion that would create a consumer staples giant.

The deal is a combination of cash and stock and totals about $40 billion on an equity basis, excluding the impact of debt. Shares of Kenvue surged 15% Monday, while Kimberly-Clark stock fell 13%.

The combined company would bring together brands like Huggies and Kleenex with the likes of Band-Aid and Tylenol. It would include 10 billion-dollar brands, the companies said in a news release. The acquisition would be one of the largest on Wall Street this year.

The transaction is expected to close in the second half of 2026.

Kimberly-Clark Chairman and CEO Mike Hsu said in a statement that the companies share a “commitment to developing science and technology to provide extraordinary care.”

“Over the last several years, Kimberly-Clark has undertaken a significant transformation to pivot our portfolio to higher-growth, higher-margin businesses while rewiring our organization to work smarter and faster,” Hsu said. “We have built the foundation and this transaction is a powerful next step in our journey.”

Kenvue, a portfolio of consumer health brands, spun out of Johnson & Johnson in May 2023, marking the biggest shake-up in J&J’s nearly 140-year history. Since then, Kenvue shares have fallen almost 35% from their initial public offering price. As of Friday’s close, Kenvue traded at about $14 per share for a market cap of roughly $27 billion.

J&J has sold all of its remaining stake in the consumer goods giant.

The deal comes just weeks after President Donald Trump made unfounded claims linking the use of acetaminophen — the active ingredient in Tylenol — during pregnancy to an increased risk of autism, sending Kenvue’s stock sharply lower. The company has staunchly pushed back against his administration’s accusation, and many medical experts say Tylenol is often the safest and only option for pain and fever relief in pregnant women.

Acetaminophen is used by upward of 100 million Americans annually.

Kenvue Chair Larry Merlo said in a statement that following a comprehensive strategic review, the board is “confident this combination represents the best path forward for our shareholders and all other stakeholders.”

Three Kenvue board members will join the Kimberly-Clark board upon the deal’s closing. Hsu will continue to serve as chairman and CEO.

The combined company would generate estimated 2025 annual net revenue of roughly $32 billion and adjusted earnings before interest, taxes, depreciation and amortization of approximately $7 billion, according to the release.

Kimberly-Clark and Kenvue expect about $1.9 billion in cost synergies from the transaction to be realized in the first three years following the deal’s close.

The acquisition comes as Kimberly-Clark and the broader consumer packaged goods industry try to address shifting demand and shopping behavior, often through deal-making and divestitures.

Tariffs imposed by Trump’s administration have challenged the industry and its profits as key commodities like pulp, which is used to make tissues and diapers, grow more expensive.

At the beginning of 2025, Kimberly-Clark stopped making private-label diapers for Costco to focus on more premium brands that command higher margins.

In June, the company sold a majority stake in its international tissue business to Brazilian pulp maker Suzano. The resulting joint venture is intended to shield Kimberly-Clark from volatile input costs and help stabilize its margins.

Once the deal closes, Kimberly-Clark will own health-care brands like Sudafed and Pepcid, once again pitting the company against rival Procter & Gamble, which has a health-care division that includes Pepto-Bismol and Vicks.

But even with Kimberly-Clark’s blockbuster acquisition, P&G still dwarfs its rival in both enterprise value and annual revenue. P&G has a market cap of about $350 billion.

Similar to Kenvue, other spinoffs have also recently proven to be popular acquisition targets. Last year, candy maker Mars announced plans to buy Kellanova, a snacking-centric spinoff of Kellogg, while Ferrero bought W.K. Kellogg, the cereal stand-alone, this year.