IS THE ECONOMIC RECOVERY V-SHAPED OR U-SHAPED? NEITHER. IT’S K-SHAPED

In March as the economy shut down due to Covid19, the stock market fell more than 30%. At the time economists and financial pundits debated whether there would be a V- or U-shaped recovery. A V-shaped recovery would indicate a quick return of the market to prior levels. A U-shaped recovery would be a slower, more painful revival during which the market would languish before ultimately returning to prior heights.
 
Five plus months after the market decline, the verdict is in. The recovery is neither V nor U-shaped, but K-shaped because of the divergent effect on the rich and the poor. For the wealthiest Americans, the recovery has been quick. This is represented by the upward slope of the letter “K.” Jobs are back for the highest wage earners who are able to work from home. With some exceptions, large corporations are doing well. Many are enjoying record stock prices.
 
However, for the lowest wage earners, the economy has continued to decline as shown by the downward lower angle of the letter “K.” The Washington Post reports that fewer than half the jobs lost this spring have returned for those making less than $20 an hour. The poorest segment of the population is unable to pay rent or put food on the table. Many smaller businesses are fighting for survival. 
 
Gross Domestic Product (GDP), a broad measure of a country’s domestic production, decreased 34.3 percent, or $2.15 trillion, in the second quarter of this year to a level of $19.41 trillion. Neither the Great Depression of 1929 nor the Great Recession of 2008 nor any other slump over the past two centuries has ever caused such a sharp drain on the economy. Unemployment is currently 10.2%, about where it was at the peak of the Great Recession.
 
According to the Washington Post, “there are two American economies right now: a buoyant recovery resting atop a possible recession.” With another wave of layoffs expected due to the financial crisis in cities and states and more closures possible if there is a resurgence of the Coronavirus in the fall, it is hard to imagine that in this two-pronged economy, the bad will not weigh down the good.