The K recovery:

A lot of people have tried to predict what kind of recovery the US and global economies will have following the Covid crisis.  We heard of the V shaped recovery which was very unlikely.  Some have talked about a U shaped recovery.  We have even had a Nike swoosh recovery coined by certain economists and analysts.  Six months into the crisis and following a market crash and subsequent meteoric rise in tech stocks we can see some signs that there will be something of a K shaped recovery.  That is a recovery with clear winners and losers. 

On one side the digital economy which has benefitted from the lockdowns and on the other more traditional businesses which have suffered from the pandemic and its impact on the economy.  The leaders of the digital world have seen their profits and stock prices rise while tourism, travel and hospitality sectors are seeing a real downturn.    

The other effect of the K recovery is that it has widened inequality.  There is widespread pain in the economy with 28M Americans jobless as of mid-August.   On the other hand people that own stocks and a lot of them are seeing their bank accounts grow.   Jobs are fully back for highest wage earners while fewer than half of the jobs lost have returned for low income earners.  The new work from home economy has also protected college graduates who are a majority to be able to work from home.  Only 20% of those without a degree have been able to do the same.

The housing market is also showing a divergent rebound.  In July, housing starts surged by 22.6% and house builder confidence grew for three straight months even reaching a record high in August.  At the same time a growing number of people are missing mortgage payments and credit card delinquencies are on the rise.  Unsurprisingly low income borrowers are the hardest hit.

The virus has changed the way we work and live our lives.  Some parts of the old economy will take a very long time to recover and pre-crisis levels may never be reached as some of the impact of the crisis may be definitive.   If we are perhaps entering a new economic era it will be important not to leave people behind and adapt so that everyone can benefit.