What is a K-shaped Recovery and Why Does it Matter?

September 8, 2020

After the pandemic and lockdown, economists described the economic recovery in terms of the letter it would look most like. A V-shaped recovery would imply a rapid rebound, while a U-shaped recovery would feature a longer trough and more gradual bounce back, for example. 

Now, many economists are worried about a K-shaped recovery. The shape is meant to describe a divergence, where the recovery is uneven, and some aspects of the economy bounce back quickly while others languish. The most obvious example of this bifurcation is the stock market, which snapped back and reached new highs, even as the GDP cratered and unemployment surged. 

Some economists see this as simply unevenness in the recovery, with some aspects lagging, but generally heading in the same direction. Others worry that there could be consequences for the nation’s long-term economic health and that it could exacerbate issues like wealth inequality and the dominance of a handful of corporations. A CNBC report on the issue notes that the stock market’s recovery has been largely confined to a handful of stocks, noting, for example, that Apple, Microsoft and Home Depot have contributed more points to the Dow this year than the other 27 stocks in the index combined. Some analysts worry that the dominance of a few stocks could be setting up a potential bubble in the market.

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