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Friday, January 1, 2021

K-Shaped Recovery, 2021

 Hamza Shaban and Heather Long at WP:

As the extent of the coronavirus became clear in March, investors sent stocks tumbling 34 percent, a bear market. But it turned out to be the shortest downturn in U.S. history. Since the U.S. stock market bottomed on March 23, the S&P 500 has risen 68 percent, shattering all-time records along the way. The rebound reflects Wall Street’s optimism about 2021, but it also underscores the disconnect between the stock market’s wild success and struggling American households.

“The markets are dominated by the folks who are in the upper echelons. They don’t feel any pain. They read about it, but they don’t experience it,” said David Kotok, founder of Cumberland Advisors. “What they do experience is the flip side: We have had very substantial productivity gains with Zoom and other daily life efficiencies." ...
By the summer, the recession was largely over for the rich. The work-from-home crowd kept their jobs and experienced a major savings boost as they spent less on dining out, travel and entertainment. U.S. household savings increased by more than $1 trillion this year, driven by government stimulus checks and the wealthy not having much to spend money on. Economists predict that some of that savings will be spent in 2021, creating a major tail wind.

There’s “north of $1 trillion of accumulated saving,” Richard Clarida, vice chair of the Federal Reserve, said at a Brookings Institution event in November. “This is the only downturn in my professional career in which disposable income actually went up in a deep recession.”

In contrast, employment for low-wage workers remains about 20 percent below pre-pandemic levels, a staggering decline that has not improved in recent months, according to Opportunity Insights’ Economic Tracker. Economists began calling it a “K-shaped” recovery because of the diverging fortunes of the rich and poor.

The recovery has been incredibly lopsided. High-income workers have been back to full employment for six months, but the recovery has stalled for low-income workers and we’re still missing millions of jobs," said John Friedman, a Brown University economist and co-director of Opportunity Insights. “If anything, things have gotten worse over the last few months for low-income workers.”

One in 8 Americans, more than 27 million adults, reported they sometimes or often didn’t have enough food to eat in the past week, according to Census Bureau survey data collected in late November and early December.