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Recovery Efforts Widen American Divide

March 22, 2021

We’ve discussed letter-based economic recovery patterns in the past. This is when a recovery path takes the form of a letter in graphical form.

Currently we seem to be in a K-shaped recovery where the upward facing part of the “K” resembles mostly white-collar workers who may not even realize a pandemic is taking place. They’ve been working from home, collecting full pay, and likely saving money because some typical expenses aren’t even possible right now, like eating at restaurants.

The downward slanting part of the “K” represents people who work in industries that require physical contact, like leisure and hospitality. They’ve been devastated by the pandemic. The December jobs report showed the leisure and hospitality industry lost 500,000 jobs alone. Employment in state and local governments fell by 51,000. Conversely, technology added 391,000 jobs.

Amazingly, the government’s response to the pandemic has actually worsened the divide between those on the different paths of the “K.”

The downward sloping folks have dealt with inconsistent lockdown and reopening measures, along with mass layoffs. The upward sloping folks enjoyed fiscal stimulus they likely didn’t need, government spending that inflated the value of their stock and real estate assets, and low interest rates they could use to refinance existing mortgages.

In other words, if you had a physical job, the government response likely hurt you. If you had a white-collar job and significant access to real estate and/or the stock market, the government’s efforts probably helped enormously.

As a result, the gap widens while the world continues to change rapidly. None of this bodes well for the average American’s overall long-term prosperity as many are in danger of being left behind.

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