Economic Statistics Show Two Recovery Paths

This week’s Courier Herald column:

When I first wrote on the economic consequences of our Covid response there was the assumption that the shutdown of our state and nation’s economy would be relatively short.  It was expected to be measured in weeks, not months.  The original goal wasn’t to perfectly defeat the disease, but to “flatten the curve” with respect to healthcare capacity.

The debate on the length and breadth of shutdowns continues, now with some hindsight. The debate in front of us also remains one of economic consequences and government response.  As with all economic models, the assumptions we start with will have a direct bearing on the policies we choose and the eventual results.

We should first acknowledge that we didn’t shut down the entire economy.  Far from it. 

Record earnings results this week from big box retailers have been a complementary bookend to earlier results from new economy technology companies.  The stock market, rocked by a sharp selloff in March, is again setting record highs here in August.

Market analysts spent much of the intervening months debating about whether we would have a “V-shaped” recovery verses a “U-shaped” recovery.  That’s economist geek speak for whether we would have a steep, quick recovery or a slower return to normal.

If you look at the stock market, there’s a case that the recovery has been the superior “V-shaped”.  If you look at this month’s unemployment report for July with more than 10% of Americans out of work, you could argue that we’re more likely in a slower, “U-shaped” path to normal.

To understand the discrepancy between the positive numbers coming from Wall Street and retail companies alongside severe unemployment numbers, there’s another letter that likely better illustrates where we are, and that is “K”.

A “K-shaped” recovery is one of divergence.  It is one where those best positioned for Covid induced closures are thriving, whereas those in the hardest hit industries and those who were already struggling prior to Covid have seen their problems magnified.

Tech companies have said that they’ve been able to achieve five years’ worth of adoption of customers to their new platforms in a matter of weeks.  This ranges from e-commerce to work from home technology to telemedicine.

For every winner in this field, there is someone or something that is no longer needed.  While many of the economic effects of Covid may be temporary, we must also be realistic that many of these jobs and companies will not be coming back.

Malls were struggling before they were forced to shut down due to the pandemic.  As they stood shuttered, stimulus money in the form of direct payments to most Americans and $600 per week enhanced unemployment benefits created additional dollars ready to be spent.

Businesses with e-commerce platforms and “big box” retailers deemed essential were able to harvest those dollars while many mom and pop retails remained closed.  The “pull forward” of positive growth for some companies and industries may have also pulled forward the probably inevitable demise of some.

We’ve moved on from the initial shock of the pandemic and are settling back into a more typical zone of discomfort.  A Congress that was able to pass relief bills spending trillions by unanimous and nearly unanimous bipartisan votes has recessed in gridlock, unable to agree on the extension of programs deemed essential just months ago.

That’s not completely a bad thing, as those who personally feel like the recovery is “V-shaped” probably don’t need direct payments from the government.  Not all of us have had this good fortune, however.

The positive economic news and strong consumer spending are something that should be celebrated in recognition that our immediate macroeconomic fortune could have been much worse right now.  At the same time, far too many are experiencing microeconomic realities that demand careful policy choices in the weeks and months to come.