A K-shaped US economy in 2026 signifies widening income inequalities, underscoring that high-income earners and asset owners will drive spending, while middle- and lower-income households will continue to struggle with stubborn inflation, stagnant wages, and a softening labour market amid fears of renewed price increases linked to tariffs. This divergence could be consequential for countries like Pakistan as the United States remains one of their largest export markets, say textiles and apparel exporters.

Moody’s says real US consumer spending growth is expected to slow to around 1.5 per cent this year, with a cooling labour market and easing wage gains among the factors eroding households’ consumption growth. This, for exporters from Pakistan and the rest of the developing world, implies slower demand growth for their products.

Not only is consumption slowing down, but there a shift in how Americans spend money. The K-shaped dynamics favour premium, branded and discretionary goods on one end, and ultra-low-cost essentials on the other, while squeezing mid-priced products. That spending by consumers in the top third of the income distribution rose at the fastest four-year pace of 4pc in November and in the lowest third by less than 1pc confirms this trend.

Pakistan’s exports to the US, heavily concentrated in textiles and apparel, mostly fall in discretionary purchases and are particularly exposed to slower US demand growth, according to an exporter. “During the pandemic, we saw Americans reduce discretionary spending, among other things, on textiles and clothing,” he adds.

For Pakistani exports, the impact is likely to be felt more through pricing pressures and margin compression than a collapse in volumes

US retailers are already signalling this behaviour. Discount chains, such as Dollar General and Dollar Tree, reported an influx of higher-income shoppers in 2025, while Walmart repeatedly described US consumers as being “choice-ful”.

“In current circumstances, the impact is likely to be felt more through pricing pressures and margin compression than a collapse in volumes,” an exporter observed.

Some argue that for Pakistan, competition in the US market is likely to intensify from lower-cost producers. Even without new duties, renewed uncertainties alone tend to push more risk down the supply chain and encourage buyers to renegotiate prices or shift sourcing.

However, the net effect for Pakistan in the US market is expected by exporters to be flat to modest export growth, accompanied by thinner margins. The challenge is less about maintaining share in the US market and more about improving competitiveness and upgrading product quality, they argue.

Slow, uneven growth

Beyond consumption, the broader US economic outlook points to slower but steady GDP growth, shaped by sticky inflation, a cooling labour market, structural constraints and lingering uncertainty after a volatile 2025, though global banks agree that a recession is unlikely.

Goldman Sachs is projecting US GDP growth of around 2.6pc. It points to fiscal stimulus, tax cuts, easing financial conditions and fading tariff headwinds as drivers of a continued expansion consistent with a soft landing.

Others lean toward a more cautious view. J.P. Morgan forecasts growth of about 1.8pc, close to the general trend as labour market conditions soften and inflation remains sticky. Moreover, the Royal Bank of Canada (RBC) described the US outlook as “stagflation lite,” forecasting growth below 2pc alongside core inflation remaining above 3pc. In its assessment, slower growth reflects deep structural forces — an ageing population, reduced immigration and uneven productivity gains — rather than a single cyclical shock.

Inflation remains the central fault line in most forecasts. J.P. Morgan expects price pressures to stay elevated as tariff pass-through continues. Goldman Sachs is more confident that inflation will moderate as tariff effects fade and demand cools.

J.P. Morgan expects further softening of the US job market, with unemployment drifting into the mid-4pc range, while Goldman Sachs anticipates stabilisation around 4.5pc, arguing that stronger final demand and easier financial conditions will support hiring.

Economists believe that tax measures — including larger refunds, lower payroll withholdings and business incentives under the so-called “One Big Beautiful Bill” Act — could provide a boost to near-term growth.

Adding to the backdrop, Goldman Sachs projects China’s real export growth at 5–6pc annually over the next few years, driven by efforts to boost manufacturing competitiveness. Stronger Chinese exports could intensify competitive pressures for US producers, and for suppliers such as Pakistan competing for market share.

The broad consensus, nevertheless, is that a severe downturn is unlikely but growth is expected to remain modest, uneven and highly policy-dependent. For Pakistan, the message is clear: US demand is likely to remain intact, but in a K-shaped economy, competitiveness, efficiency and strategic positioning will matter more than ever.

Published in Dawn, The Business and Finance Weekly, January 12th, 2026