Wealth and Income

Just some basic information and explanation. A few notes on wealth and income and the growth for a few since 1989

K-Shaped Recovery

A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes.

It’s called K-shaped because the path of the different parts of the economy when charted together may diverge, resembling the two arms of the letter “K.”

An example . . .

A K-shaped recovery leads to changes in the structure of the economy as economic outcomes and relations are fundamentally changed before and after the recession.

The term “K-shaped” recovery gained prominence in 2020 and 2021 in the wake of the sharp recession in the U.S. that accompanied the COVID-19 pandemic. It was used to describe the uneven economic recovery across different sectors, industries, and groups of people in the economy.

Other letter-shaped descriptors of economic recessions and recoveries (e.g. L-shaped, V-shaped, U-shaped, W-shaped), describe the path of economy-wide macroeconomic aggregate variables like gross domestic product (GDP) or total employment. A K-shaped recovery describes the path of different disaggregated economic variables. Income across different segments of society, employment in different industries, relative to one another are what the nation is experiencing recently.

What Causes a K-Shaped Recovery?

Different economic phenomena may be at work in driving a K-shaped recovery.

It can also reflect the differential impact the initial recession had on different parts of the economy. More likely than not this occurs when the recession coincides with or is triggered by negative real economic shocks affecting specific parts of the economy. It can have more lasting effects on them than on others. These three conditions may not be mutually exclusive. All three may be at play in a given K-shaped recovery, along with other factors.

Bottom Line

A K-shaped economic recovery is when various sectors, industries, and groups within an economy recover at different rates after a recession. It occurs for a number of reasons as relates to technological and structural change within an economy. It can also be a response to a recession by policymakers.

Ok . . . .

What do the executives see? “the top half of US households have, in relative terms, almost everything, while the bottom half have almost nothing.”

Has the Economy become more K-Shaped?

Executives are seeing much of this occurring. “K-shaped economy: Why the wealthy are thriving as most Americans fall behind,” PBS News

Some more information: “Economists call that phenomenon a “K-shaped” economy: Wealthier people are spending like nothing’s wrong. Lower-income people are making significant changes to preserve their finances.

Federal Reserve Chair Jerome Powell addressed the concept Wednesday in a media briefing.

“On the K-shaped economy . . . if you listen to the earnings calls or the reports of big public consumer-facing companies, many of them are saying there is a bifurcated economy. Consumers at the lower end are struggling and buying less and shifting to lower-cost products. But at the top, people are spending, at the higher income and wealth.”

It’s not all anecdotal: Last month, Moody’s Analytics reported that the country’s top earners are accounting for a growing share of overall spending.

What’s causing that divide?

Wealthier Americans are generally invested in the surging stock market, gaining 17% this year. They have job security while than lower-income workers have less. The wealthy own homes, which appreciate in a tight-supply market.

Less-affluent Americans are living paycheck to paycheck, Wages are not keeping up with inflation. Lost jobs in a bad labor market prevents them from finding a new one. The number of Americans on unemployment insurance for multiple weeks recently surged to a four-year high. Until recently, rents jumped as demand for rentals explodes . . . few homes are on the market.

This report is from EOM October. I have not been able to find a chart I can access and show at Angry Bear yet. There is an unequal flow of wealth and funds. This is the best I can do for now. Note the unequal distribution by percentage by wealth and income..

The Fed, Distributional Financial Accounts Overview

The interactive charts and tables allow users to explore the level, composition, and share of U.S. household wealth held by five percentile groups of wealth consisting of: the top 0.1 percent, the remaining 0.9 percent of the top 1, the next 9 percent (i.e., 90th to 99th percentile), the next 40 percent (50th to 90th percentile), and the bottom half (below the 50th percentile). The data set contains the level and share of aggregate household wealth by income, age, generation, education, and race. Wealth by Income is below.

The Fed, Distribution: Distribution of Household Wealth in the U.S. since 1989.

It will take a while for me to find more data and create the explanation for the variance. However, overwhelmingly the upper 1% and 10% are experiencing the greatest gains in wealth (upper chart) and income (lower chart. More later.

Some references below. The charts have links if you wish to see more.

K-shaped economy and inflation boost Black Friday sales by 4.1% from last year, online spending jumps 9.1% | CNN Business

Selling the Poor on Spending Like They’re Rich – The American Prospect

Some Explanation of a K-Shaped Recovery Investopedia