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Hi y’all —
Happy almost Halloween! Gather ‘round and grab a candy bar, because I’m going to tell you some scary stories. *turns on flashlight under chin*
Once upon a time, I ordered a huge plate of French fries at a restaurant. I happily grabbed the salt shaker and generously seasoned them. But when I started eating, I realized I had in fact dumped sugar on everything. The meal was ruined.
Once upon a time, I was trying to look up an acquaintance on Facebook. I was distracted, though, and instead of typing their name into the search bar I made it my (public) status. My blood ran cold.
Once upon a time, I found out a Dollar Scholar reader scrolled past all of my hard work to skip to the Bottom Line. I was horrified.
Spooky, right? But if you want to talk about something truly terrifying, we should really discuss the economy.
It’s chaos. After an awful spring and a touch-and-go summer, the U.S. economy is finally starting to improve. Even though we’re still in a pandemic and a recession, we’re reaching a place where experts are starting to predict what recovery might look like. They’re always throwing around letters to describe the trajectory: U-shaped, L-shaped, K-shaped.
It sounds like alphabet soup to me. What are all of these recession “letters,” and what do they mean?
I called Derek Klock, a CFP and professor of practice in Virginia Tech’s finance department, for more information. He told me recoveries are often charted in letter form because regular, non-economist people can easily interpret them.
“It just gives visual learners a way to grasp what is going on in as few words as possible,” he adds.
The line on the graph is the gross domestic product, or GDP, which is often used as a proxy to describe how the nation is faring economically. The left side of the letter shows how the recession begins, and the right side shows the return to normal. The steeper the line, the quicker the decline/increase.
A V-shaped recovery is where the economy has a pretty fast decline, but it proves temporary and things get back to roughly the same spot without much delay. An L-shaped recovery is a sharp drop in GDP followed by a long stagnant period with little growth. A U-shaped recovery is where the economy bottoms out for a while before rising, and a W-shaped recovery is when the economy recovers fully but then takes a second dip down shortly thereafter.
Daniil Manaenkov, the chief U.S. economist at Research Seminar in Quantitative Economics, said there’s also the K-shaped recovery, a “new invention” of sorts that refers to how different sectors of the economy recover at different speeds. |
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So what letter is this recession? Depends who you ask.
The White House has insisted we’re seeing a V-shaped recovery. Democratic presidential nominee Joe Biden has argued it’s K-shaped, where wealthy people are recovering fine but lower-class Americans continue to struggle (especially without expanded unemployment benefits and/or a second stimulus check).
According to Manaenkov, economists so far have seen “a checkmark recovery or square root sign, but it’s not a catchy term.” He added that an L- or U-shaped recovery could also be possible depending on what happens with the election, social attitudes toward the pandemic, federal relief and such.
Gabriel Mathy, an assistant professor of economics at American University, told me it could be a Nike swoosh-shaped recovery, where "we would see an initial fast recovery that then slows down."
Klock said the best shape he can think of is a zigzag: specifically, the inverse of the U.S. confirmed daily COVID-19 cases chart.
“The worse the virus gets, the worse the economy is going to get,” he says. “Until we have a vaccine that is both trusted and economically viable, we’re going to be in this ebb and flow.”
That’s because recovery is tied to people feeling physically safe and financially secure enough to go out and spend money. If there’s a second (or third) wave of lockdowns, it could further hamper the country’s rebound.
It’s also difficult because so much economic data is backwards-looking. Like how the National Bureau of Economic Research doesn’t formally declare the country in a recession until months in, it doesn’t call the end until things are well over. Plus, there’s no precedent for this.
“It’s typically been one of two things that has created economic chaos: something endemic to the economy, or it has been war,” Klock adds. “This is different. This is the first time where we’ve had a completely exogenous event do this to the global economy.” |
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(but please don't tell me you scrolled past all of my hard work)
Politicians, economists and the like are using letters to talk about the economy because it’s an easy way to describe the path of recovery. But nobody can agree on what shape this recession may take: Trump says V, Biden says K, and my economists didn’t even want to use letters.
It’s also important to remember that just because the economy is rebounding doesn’t mean every single American will immediately be better off/back to where they were in March. Everything is uncertain — personal impacts included.
“We are just as good as data tells us to be, and the data is very, very noisy at the moment,” Manaenkov says. “We’re watching this unfold in real time.” |
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check out this crazy celebrity purchase |
When musician and TikTok chef Jason Derulo hit No. 1 on the Billboard charts earlier this month, he celebrated just like you or I would: By spending six figures. Derulo bought drinks for everyone at the bar, paying a savage bill of $112,742.30. I’d make a joke here, but Derulo is clearly having a great 2020. And that’s saying something, because he was in Cats. |
five things I'm loving online right now |
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1
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This
Facebook post from Yellowstone National Park is blowing my mind. First of all, I didn’t know that rangers “experience a level of isolation unknown to most modern Americans” every winter. Secondly, I had no idea you could can so many different things. Elk? Deer?? Moose??? And here I was thinking mason jar cocktails from Brooklyn bars were innovative. |
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2
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Daniel Radcliffe is wacky but well-dressed; Tom Felton is going all in on DracoTok. |
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3
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This
article taught me about quesabirria, a broth-soaked tortilla/meat/cheese Mexican dish that’s trendy on the west coast, and now I’m on a mission to try one. Would it give me heartburn? Yes. But would it be worth it? Judging from these photos, absolutely.
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4
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Of course I read the recent GQ profiles of
Paul Mescal and Timotheé Chalamet. And of course I swooned. I especially loved this Timmy scene: “He scampered over to a vending machine there to grab a bottle of water. When he pulled open his wallet to pay, he had only twenties. ‘Bad metaphor! Bad metaphor!’ he screamed, jumping away from the vending machine, as though it were one of the great threats to his selfhood.”
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5
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Wishing I were a
bear sliding butt-first down a waterfall right about now.
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send me cute pictures of your pets, please |
This is Edie, a cloud-like pup who lives somewhere over the rainbow in Brooklyn. Edie is hoping for a W-A-L-K-shaped economic recovery. |
Well, this bag of candy corn isn’t going to eat itself.
See you next week.
Julia
P.S. What shape do you predict for this recession? Have you ever canned anything weird? How much was your biggest bar tab? Send treats, not tricks, to julia.glum@money.com or @SuperJulia. |
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