There has been a lot of talk about the kind of recovery the economy is going through. A V shape would be one where it recovers very quickly without anyone being left behind, a U shape would take longer to save but everyone would recover and a square root recovery is a bit improper since the last part of the recovery is higher than before the recession. What a square root recovery is supposed to represent is a rapid rebound but no or no growth after the rapid recovery.
There was also talk of a W-shaped recovery where the economy recovers largely but falls back before regaining momentum and returning to what it was before the downturn. There is even an L-shaped recovery, which is probably the longest of all, as it means the economy is not returning to its trendline and is permanently damaged. The table below Visual capitalist helps to represent them.
Although it appears the economy is on a slow but steady upward trajectory, as the Federal Reserve Bank of New York report shows Weekly economic index below, for thousands of businesses and millions of people, the reality is very different.
Three K-Shaped Recovery Graphics
Another shape that shows what’s really going on is a K-shaped recovery. This genre shows that part of the population and businesses are recovering quickly and completely, while another is in great pain. Considering the impact of Covid-19 and what it has done to the restaurant, bar, travel and hospitality industries, it’s not hard to realize that this is the type of recovery in the United States. Unlike industries such as technology and some retail segments, shown in the chart of the American Chamber of Commerce, who have not only recovered but are doing better than before the coronavirus hit.
Opportunity Insights is a team of researchers and policy analysts based at Harvard University. An analysis they have developed is how unemployment affects workers of different income levels. As the chart below shows, workers in the bottom quartile (people earning less than $ 27,000 per year) saw their jobs drop by almost 20% while less than 1% of those earning more than $ 60,000 per year. an have lost their jobs.
The third graph describing the K-shaped recovery comes from a National Bureau of Economic Research working paper in August. He analyzed what people did with the $ 1,200 (plus $ 500 per child) stimulus checks they received.
It shows that almost 40% of respondents did not spend the money they received; they either spared it or paid off their debts. At the other extreme, almost 30% spent the entire amount on durable goods, food, medical supplies and other consumer products. The remaining 30% and more had a mixture of spending and saving. Those who needed the stimulus checks to make ends meet or to try to survive spent it all, while at the other extreme the payments were a godsend.