The heated debate between President Trump and former Vice President Joe Biden became an alphabet game Tuesday when moderator Chris Wallace asked applicants if the U. S. economy recovers in the form of a V or K-shaped coronavirus recession.
Trump said it was a V, while Biden said it looked like a K.
The exchange raised one more question: what is a V- or K-shaped recovery anyway?
A V-shaped uptick occurs when the economy contracts drastically but recovers just as dramatically. Many economists think this V-shaped slowdown may have been triggered by a pandemic that forced the closure of restaurants, shops, cinemas, and other businesses. and decimated airlines and hotels through cooling trips.
However, as soon as the epidemic subsides and businesses reopen, the economy can theoretically return to its previous point of production.
Initially, the recovery looked like a V. After the United States cut 22. 1 million jobs in April and May, it recovered 7. 5 million in May and June when restaurants and other companies began reopening.
But task expansion slowed to 3. 1 million in July and August, and a Friday report is expected to show 850,000 payroll earnings in September. Totals are expected to decline further in the coming months, as many restaurants and other outlets operate with limited capacity and many consumers avoid public collection amid the continued spread of the virus. The travel industry is still in bad shape. And Congress is stuck in a new stimulus package designed for suffering companies and the unemployed.
There is also lasting damage: bankruptcy corporations that have been permanently dismissed.
Gus Faucher, a leading economist in the PNC Financial Services Group, does not expect the country to suffer all the jobs lost in the pandemic until 2023.
“It’s a forged recovery, but it will take time to get back to where we were,” Faucher said.
Another way to assess the uptick is to take a look at the country’s gross domestic product, the sum of all the goods and what the economy produces. After falling to a record annual rate of 31. 4% in the current quarter, the economy is estimated to have grown. up to about 32% in the third quarter (July-September).
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But this gain does not compensate for the loss of the same magnitude, because the economy shrank after the sharp decline. Returning to the country’s GDP point until the end of 2019 would require a 54% increase in production, says Ian Shepherdson. leading economist at Pantheon Macroeconomics.
Faucher believes the economy will succeed in this goal until the end of next year. As a result, what as a V-shaped recovery is starting to look more like a U: a slow increase.
Some economists disagree. Morgan Stanley suggests that the US should not be able to do so. But it’s not the first time It is in a relative V-shaped recovery, estimating that it will take 18 months to recover its pre-pandemic GDP, compared to 30 months of the Great Recession in 2007-09.
A bounce that looks like a K occurs when some parts of the economy recover sharply while others stumble. This is now and in more tactics than one.
Some industries, such as restaurants, hotels, cinemas, and concert halls, would likely continue to struggle for some time, while others, such as grocery retailers and generation providers like Amazon and Zoom, are thriving. due to traditionally low lending rates and Americans’ preference to move to rural and suburban spaces less affected by the pandemic.
Another way to see the divided personality of the economy is the point of income. Low-income staff in service industries such as restaurants and retail stores continue to struggle, while professionals who can paint from home remain largely unscathed. Meanwhile, wealthy Americans are making a profit from the uptick in the inventory market from their pandemic-induced collapse earlier this year, as Biden noted.
The recovery is conceivable to be V- and K-shaped at the same time, Faucher notes, if the progress made across some sectors or staff far outweighs the struggles of others to temporarily revive the economy as a whole.
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But it would be a complicated balancing act, and many high-level economists say this is probably not the existing scenario, as the United States continues to recover from the remnants of COVID-19.
So, the recovery is almost K-shaped, it probably wouldn’t be a V.