It is silly to use only one letter to describe the economy. This time, one letter seems to work that letter is “K”
Bloomberg, September 2, 2020
What single letter would you use to predict the recovery?
There are 26 letters which humans, unlike other animals, could use to form words and even sentences to express complex thoughts. Rather than dumb down something as intricate as the economy to a cave painting, why not use the full majesty of the English language to communicate nuanced ideas? To a simple letter
So, what letter?
On the national news, we hear discussions on “U” and “V” and “L” and “W” shaped recoveries. My favorite is the “Nike Swoosh” recovery – which may very well be a letter somewhere in the Milky Way galaxy, but here on earth represents instead the triumph of brand marketing rather than an alphanumeric example.
The K Recovery
“K” has since shoved aside from these discussions. For those not in known the letter, K is the 11th letter in the English alphabet to someone who has never seen it, you would note it is distinguished by a bold vertical line, from the midpoint of which begins two rightward traversing lines, one slanting 45 degrees upwards from the horizontal, the other, 45 degrees downwards.
What is a K Recovery
This description of the economy fairly captures the two separate paths of the recovery. The line heading upward symbolizes those parts of the economy that have benefited from pandemic: Technology (Apple Inc., Alphabet Inc., Microsoft Corp.), general merchandise retailers (Target, Walmart), entertainment (Netflix Inc., W., YouTube), Biotech, and Pharmaceuticals (Moderna Inc., Johnson & Johnson & Johnson, Merck & Co., Pfizer Inc., AstraZeneca PLC) work from home firms (Slack Technologies Inc., Zoom Video Communications Inc.) and online retailers (Amazon.com Inc., Shopify Inc.).
The line heading downward symbolizes, well, pretty much everyone else. We see this reflected in how various S&P 500 Index sector funds have performed. Technology (Technology Select Sector SPDR Fund), Communications (Communication Services Select Sector SPDR Fund), and Consumer Discretionary (Consumer Discretionary Select Sector SPDR Fund) are up 31.6%, 18.4%, and 16.9%. The three worst-performing broad sectors, Energy (Energy Select Sector SPDR Fund), Financials (Financial Select Sector SPDR Fund), and Utilities (Utilities Select Sector SPDR Fund) are down 40.3%, 18.7%, and 8.2%.
As much as I despise the “single letter” silliness, it’s a reminder of the truth about the economy: over the past four decades, the U.S. has become a nation that has seen the benefits of economic growth, productivity, and innovation accruing to fewer and fewer people. Once a nation of “Haves” and “Have Nots,” we are now a nation of “Haves,” “Have Nots,” and “Have Much More.” The last category has left the first two in the dust.
The Bottom Line
And that was before the pandemic. If you disliked how the last economic expansion unfolded, you are going to really hate the next one, as the economic divide has become even steeper. All of the factors impacting wages and employment are now more pronounced. Economically, there has never been a worse time to be high school dropout in America. Workers with more education simply have lower unemployment rates, according to the Bureau of Labor Statistics. They also earn more money. This gulf is likely to widen even further in the future.
I am forced to admit that the letter “K” captures the coming recovery in its simplest form.
I was once heard: “when you act with force — you can’t stabilize a crisis like this.”
Hat Tip: Economist