COVID-19

Why do economists compare recessions to letters of the alphabet?

Marielle Segarra Sep 30, 2020
Heard on: Marketplace
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What kind of economic recovery are we in, exactly? Angela Weiss/AFP via Getty Images
COVID-19

Why do economists compare recessions to letters of the alphabet?

Marielle Segarra Sep 30, 2020
What kind of economic recovery are we in, exactly? Angela Weiss/AFP via Getty Images
HTML EMBED:
COPY

During last night’s debate, moderator Chris Wallace asked the candidates a question about how they thought this economy would recover from the recession. The Trump administration has said the recovery will be V-shaped, while former Vice President Biden has said it’ll be K-shaped. We explain what that means.

When you’re a kid, you learn the alphabet song. It’s just a device to help you remember your letters.

This is kind of what economists are doing with the V-shape, K-shape thing. They’re using the alphabet as a device to explain how we bounce back from recessions. 

“It’s sort of a catchy and almost cute way of summarizing a very complex situation,” said Seth Carpenter, chief U.S. economist at UBS. 

Think of it this way: If you charted out U.S. GDP growth over time what shape would you see?

If it’s a V-shape, economic growth fell fast and hard but then bounced back just as fast.

There’s the U-shape, “where things fall, and then they take a long time at a low level, before starting to recover,” Carpenter said.

Also, the W-shape: up and down, up and down. The L-shape. The J-shape.

And the K-shape: one leg up, one leg down.

“The K is more nuanced,” said Erik Lundh, senior economist at research group the Conference Board. “It’s not talking about just headline GDP growth, it’s talking about how different groups inside of the economy are recovering.”

The term seems to have cropped up in response to this recession because certain industries, like restaurants, have been hit way harder than others. And so have certain people.

Lundh says you could have a recovery that’s V- or J-shaped and K-shaped, where the data shows the broader economy bouncing back but large groups being left out.

COVID-19 Economy FAQs

New COVID-19 cases and deaths in the U.S. are on the rise. How are Americans reacting?

Johns Hopkins University reports the seven-day average of new cases hit 68,767 on Sunday  — a record — eclipsing the previous record hit in late July during the second, summer wave of infection. A funny thing is happening with consumers though: Even as COVID-19 cases rise, Americans don’t appear to be shying away from stepping indoors to shop or eat or exercise. Morning Consult asked consumers how comfortable they feel going out to eat, to the shopping mall or on a vacation. And their willingness has been rising. Surveys find consumers’ attitudes vary by age and income, and by political affiliation, said Chris Jackson, who heads up polling at Ipsos.

How many people are flying? Has traveled picked up?

Flying is starting to recover to levels the airline industry hasn’t seen in months. The Transportation Security Administration announced on Oct. 19 that it’s screened more than 1 million passengers on a single day — its highest number since March 17. The TSA also screened more than 6 million passengers last week, its highest weekly volume since the start of the COVID-19 pandemic. While travel is improving, the TSA announcement comes amid warnings that the U.S. is in the third wave of the coronavirus. There are now more than 8 million cases in the country, with more than 219,000 deaths.

How are Americans feeling about their finances?

Nearly half of all Americans would have trouble paying for an unexpected $250 bill and a third of Americans have less income than before the pandemic, according to the latest results of our Marketplace-Edison Poll. Also, 6 in 10 Americans think that race has at least some impact on an individual’s long-term financial situation, but Black respondents are much more likely to think that race has a big impact on a person’s long-term financial situation than white or Hispanic/Latinx respondents.

Find the rest of the poll results here, which cover how Americans have been faring financially about six months into the pandemic, race and equity within the workplace and some of the key issues Trump and Biden supporters are concerned about.

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