A “K” Shaped Recovery

A “K” Shaped Recovery

Everyone wanted a “V-shaped” recovery from the recession caused by the COVID-19 pandemic and subsequent “great pause” of the economy. A “V” recovery would mean that the economy experienced a sharp, deep contraction, but an equally sharp rebound back to the level it was at before the crisis.

A “V” recovery is unlikely at this point.

Instead, the recovery is taking on the characteristics of a “K-shaped” recovery. That means some industries are recovering quickly, while others unfortunately are still dropping. If you cut the “K” in half horizontally, the recovering companies are the top part, and the dropping companies are the bottom part.

Big picture: Overall, the economy is recovering well. The second quarter saw a record quarterly contraction of 32%, and growth in the third quarter is tracking to be north of 20%, which would be the record quarterly expansion.
The Economy Could Grow at Record RatesGrowth is likely to tail off in the fourth quarter and into 2021. On this pace it could take until late in 2021 for the economy to return to its level at the end of 2019.
GDP to Return to Pre-Shock Levels
That growth is being led largely by the industries in the top part of the “K,” such as tech companies that are seeing a boom from the increase in online activity during the pandemic. Some retailers, especially those with a strong online presence, are doing well. The automotive and manufacturing sectors are also recovering sharply.

The flip side of the K are the food and beverage industries, some brick-and-mortar retailers, travel and tourism, and other types of business that cannot reopen at all because they require people to be in close contact, or they are operating at reduced capacity because of social distancing guidelines. These sectors have businesses of varying sizes.

Our take: It is important not to lose sight of these businesses as the recovery continues. Until the pandemic is fully over and we can return to our lives as they were before the virus struck, they are likely to continue to struggle. The businesses on the sliding part of the “K” may need government assistance longer than other industries, and in the immediate future need a phase four relief bill from Congress as soon as possible.

—Curtis Dubay, Senior Economist, U.S. Chamber of Commerce