Connect with us

V-Shaped Recovery Only 10% – K-Shaped for Most

The K-Shaped Recovery. A “V” For Some, Not For Most.

Published

on

This article was originally published by Real Investment Advice.

Economists have come up with every variation of applying a letter of the alphabet to the economic recovery. Whether it’s an “L,” a “W” or a “V,” there is a letter that suits your view. But what is a “K”-shaped recovery? Take a closer look at the letter “K.” It’s a “V” on the top, and an inverted “V” on the bottom. According to Investopedia:
“A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes. This is in contrast to an even, uniform recovery across sectors, industries, or groups of people. A K-shaped recovery leads to changes in the structure of the economy or the broader society as economic outcomes and relations are fundamentally changed before and after the recession.

Creative Destruction

Following the economic shutdown, much of the data shows strong signs of improvement. However, several different economic phenomena are driving a K-shaped recovery. One of the more interesting aspects of the recovery has been that of “creative destruction:”
“Creative destruction is a concept in economics which since the 1950s has become most readily identified with economist Joseph Schumpeter. Schumpeter derived it from the work of Karl Marx and popularized it as a theory of economic innovation and the business cycle. According to Schumpeter, the ‘gale of creative destruction’ describes the ‘process of industrial mutation. The process continuously revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one'” – Wikipedia
Industries like technology, retail, and software services are leading the way in “creative destruction.” Technology companies like Apple Inc., Alphabet Inc., and Microsoft Corp. saw earnings expand during the economic recession. General merchandise retailers such as Target, Walmart, and Costco, along with online video entertainment giants Netflix Inc., Walt Disney Co., and YouTube, made sizeable gains as the economy closed. Biotech, Pharmaceuticals, and, of course, “Work From Home” firms like Slack and Zoom blossomed with online retailers like Amazon and Shopify. However, while the “fire of necessity” gave birth to a host of new companies, simultaneously others got lost. Travel, airlines, cruises, movie theaters, traditional retailers, and real estate remain under significant financial pressures.

The Other Side

In the bottom half of the “K” shaped recovery lies the majority of the economy. Its recovery is questionable the longer the pandemic goes on. The shift to “Work From Home” or “WFH,” along with the rise of the associated technologies, has companies questioning the need for expansive commercial offices. WFH also requires less employment. In traditional office environments, assistants, associates, and others were previously relied on for more mundane tasks. However, in the WFH environment, those roles become less important as independent working rises. The need for “less” during the employment recovery is very much part of the “K” shape. Yes, certainly those with skill sets are finding jobs versus those without. Importantly, employers are also finding out they can hire higher qualified talent for less money. For example, I spoke to a restaurant owner who has been hiring as the economy reopened in Texas. His experience has been an overwhelming number of applications for waitstaff, bartenders, and hosts by individuals with bachelor degrees or better. It isn’t there aren’t jobs for those with a high-school diploma or less, individuals are just taking those jobs with greater education levels. The process of “creative destruction” is in action, and there are plenty of statistics currently suggesting such is the case.

Not A Broad Recovery

Just recently, Michael Snyder released a list of startling economic facts.
  1. All 546 Regal Cinema theaters in the United States are shutting down, and there is no timetable for reopening them.
  2. AMC Entertainment (the largest movie theater chain in the U.S.) reported they would “run out of liquidity” in 6 months.
  3. The average rent on a one-bedroom apartment in San Francisco is 20.3 percent lower than it was one year ago.
  4. During the 3rd quarter, the number of vehicles delivered by General Motors was down about 10 percent from a year ago.
  5. Anheuser-Busch will be laying off 400 employees in Loveland, Denver, Littleton, and Colorado Springs.
  6. Allstate has just announced that they will be laying off 3,800 workers.
  7. JCPenney says that it will be cutting approximately 15,000 jobs as we approach the holiday shopping season.
  8. On Thursday, we learned that another 787,000 Americans filed new claims for unemployment benefits during the previous week.
  9. Overall, more than 60 million Americans have filed new claims for unemployment benefits so far in 2020.  That number is far higher than anything we have ever seen before in all of U.S. history.
  10. Retail store closings in the United States continue to surge along at an unprecedented pace.
  11. Bankruptcy filings in New York City have risen 40 percent so far in 2020.
  12. This number is hard to believe, but almost 90 percent of New York City bar and restaurant owners couldn’t pay their full rent for August.
However, if you look at the stock market as an indicator of economic recovery, it certainly seems these are isolated cases. Unfortunately, such isn’t the case.

A “V” For The Top 10%

As noted by the WSJ previously:
“As of December 2019—before the shutdownshouseholds in the bottom 20% of incomes had seen their financial assets, such as money in the bank, stock and bond investments or retirement funds, fall by 34% since the end of the 2007-09 recession, according to Fed data adjusted for inflation. Those in the middle of the income distribution have seen just 4% growth.” – WSJ
Fed Top 10% Richer, Fed Study: How We Made The Top 10% Richer Than Ever. Indeed, one of the simplest ways to envision the current “K” shaped recovery is by looking at the surge of the stock market since late March. However, as we have noted previously, the “stock market” is no longer representative of the underlying economy. Such is due to massive interventions by the Federal Reserve, which pushed speculation in “risk” assets to historic levels Even though the revenues generated by corporations come from economic activity, the Fed has fostered a “debt-driven” explosion of speculative investment activity. Despite the economy plunging in Q2 by most since the “Great Depression,” unemployment surging, and nearly 50% of small businesses nationwide failing, the stock market soared to new highs. Such is a clear example of how Central Bankers distorted the economic relationship. It also exacerbated financial inequality when the top 1% of earners owns 52% of the stocks and mutual funds. As I showed last week, the differential in ownership in financial assets between the top 10% of the economy, which owns fully 88% of the stock market, and everyone else isn’t even close. Fed Top 10% Richer, Fed Study: How We Made The Top 10% Richer Than Ever. While the “rich get richer,” the poor continue to suffer. Unfortunately, the fiscal stimulus will only worsen the divide.  

Expecting A Different Outcome

In the current recovery, it is clear that those at the top of the “K” are indeed experiencing a “V”-shaped recovery. For the rest, not so much. Unfortunately, policy-makers, along with the Federal Reserve, are stuck. Since politicians want to get re-elected, sending money to households is a way to “buy the vote.” The average American doesn’t understand their demands on the Government for more support is leading to their economic inequality.  Conversely, the Federal Reserve serves at the mercy of the major Wall Street banks, so their policy focuses on inflating assets prices for the 10%, hoping it might one-day trickle down to the bottom 90%. After a decade, it hasn’t happened. What we are confident of is that these “new policies” are very much the same as the “old policies.” As such, they will continue to foster economic inequality, inflated assets, and a further widening of the “wealth gap.”  These policies will ultimately result in further social instability and populism. History is replete with examples of the “endgame” of socialistic experiments of running unbridled debts and deficits. Maybe we should try something different, and allow recessions to reset economic imbalances. Yes, it will be painful in the short-term, but the long-term benefits of expanded economic prosperity might be worth it. One thing is for sure, “repeating the same failed actions and expecting a different outcome” has never been a solution for success. We are reasonably confident it won’t work this time either.
The post The K-Shaped Recovery. A “V” For Some, Not For Most. appeared first on RIA.

Read More

Continue Reading

International

United Airlines adds new flights to faraway destinations

The airline said that it has been working hard to "find hidden gem destinations."

Published

on

Since countries started opening up after the pandemic in 2021 and 2022, airlines have been seeing demand soar not just for major global cities and popular routes but also for farther-away destinations.

Numerous reports, including a recent TripAdvisor survey of trending destinations, showed that there has been a rise in U.S. traveler interest in Asian countries such as Japan, South Korea and Vietnam as well as growing tourism traction in off-the-beaten-path European countries such as Slovenia, Estonia and Montenegro.

Related: 'No more flying for you': Travel agency sounds alarm over risk of 'carbon passports'

As a result, airlines have been looking at their networks to include more faraway destinations as well as smaller cities that are growing increasingly popular with tourists and may not be served by their competitors.

The Philippines has been popular among tourists in recent years.

Shutterstock

United brings back more routes, says it is committed to 'finding hidden gems'

This week, United Airlines  (UAL)  announced that it will be launching a new route from Newark Liberty International Airport (EWR) to Morocco's Marrakesh. While it is only the country's fourth-largest city, Marrakesh is a particularly popular place for tourists to seek out the sights and experiences that many associate with the country — colorful souks, gardens with ornate architecture and mosques from the Moorish period.

More Travel:

"We have consistently been ahead of the curve in finding hidden gem destinations for our customers to explore and remain committed to providing the most unique slate of travel options for their adventures abroad," United's SVP of Global Network Planning Patrick Quayle, said in a press statement.

The new route will launch on Oct. 24 and take place three times a week on a Boeing 767-300ER  (BA)  plane that is equipped with 46 Polaris business class and 22 Premium Plus seats. The plane choice was a way to reach a luxury customer customer looking to start their holiday in Marrakesh in the plane.

Along with the new Morocco route, United is also launching a flight between Houston (IAH) and Colombia's Medellín on Oct. 27 as well as a route between Tokyo and Cebu in the Philippines on July 31 — the latter is known as a "fifth freedom" flight in which the airline flies to the larger hub from the mainland U.S. and then goes on to smaller Asian city popular with tourists after some travelers get off (and others get on) in Tokyo.

United's network expansion includes new 'fifth freedom' flight

In the fall of 2023, United became the first U.S. airline to fly to the Philippines with a new Manila-San Francisco flight. It has expanded its service to Asia from different U.S. cities earlier last year. Cebu has been on its radar amid growing tourist interest in the region known for marine parks, rainforests and Spanish-style architecture.

With the summer coming up, United also announced that it plans to run its current flights to Hong Kong, Seoul, and Portugal's Porto more frequently at different points of the week and reach four weekly flights between Los Angeles and Shanghai by August 29.

"This is your normal, exciting network planning team back in action," Quayle told travel website The Points Guy of the airline's plans for the new routes.

Read More

Continue Reading

International

Walmart launches clever answer to Target’s new membership program

The retail superstore is adding a new feature to its Walmart+ plan — and customers will be happy.

Published

on

It's just been a few days since Target  (TGT)  launched its new Target Circle 360 paid membership plan. 

The plan offers free and fast shipping on many products to customers, initially for $49 a year and then $99 after the initial promotional signup period. It promises to be a success, since many Target customers are loyal to the brand and will go out of their way to shop at one instead of at its two larger peers, Walmart and Amazon.

Related: Walmart makes a major price cut that will delight customers

And stop us if this sounds familiar: Target will rely on its more than 2,000 stores to act as fulfillment hubs. 

This model is a proven winner; Walmart also uses its more than 4,600 stores as fulfillment and shipping locations to get orders to customers as soon as possible.

Sometimes, this means shipping goods from the nearest warehouse. But if a desired product is in-store and closer to a customer, it reduces miles on the road and delivery time. It's a kind of logistical magic that makes any efficiency lover's (or retail nerd's) heart go pitter patter. 

Walmart rolls out answer to Target's new membership tier

Walmart has certainly had more time than Target to develop and work out the kinks in Walmart+. It first launched the paid membership in 2020 during the height of the pandemic, when many shoppers sheltered at home but still required many staples they might ordinarily pick up at a Walmart, like cleaning supplies, personal-care products, pantry goods and, of course, toilet paper. 

It also undercut Amazon  (AMZN)  Prime, which costs customers $139 a year for free and fast shipping (plus several other benefits including access to its streaming service, Amazon Prime Video). 

Walmart+ costs $98 a year, which also gets you free and speedy delivery, plus access to a Paramount+ streaming subscription, fuel savings, and more. 

An employee at a Merida, Mexico, Walmart. (Photo by Jeffrey Greenberg/Universal Images Group via Getty Images)

Jeff Greenberg/Getty Images

If that's not enough to tempt you, however, Walmart+ just added a new benefit to its membership program, ostensibly to compete directly with something Target now has: ultrafast delivery. 

Target Circle 360 particularly attracts customers with free same-day delivery for select orders over $35 and as little as one-hour delivery on select items. Target executes this through its Shipt subsidiary.

We've seen this lightning-fast delivery speed only in snippets from Amazon, the king of delivery efficiency. Who better to take on Target, though, than Walmart, which is using a similar store-as-fulfillment-center model? 

"Walmart is stepping up to save our customers even more time with our latest delivery offering: Express On-Demand Early Morning Delivery," Walmart said in a statement, just a day after Target Circle 360 launched. "Starting at 6 a.m., earlier than ever before, customers can enjoy the convenience of On-Demand delivery."

Walmart  (WMT)  clearly sees consumers' desire for near-instant delivery, which obviously saves time and trips to the store. Rather than waiting a day for your order to show up, it might be on your doorstep when you wake up. 

Consumers also tend to spend more money when they shop online, and they remain stickier as paying annual members. So, to a growing number of retail giants, almost instant gratification like this seems like something worth striving for.

Related: Veteran fund manager picks favorite stocks for 2024

Read More

Continue Reading

Uncategorized

Comments on February Employment Report

The headline jobs number in the February employment report was above expectations; however, December and January payrolls were revised down by 167,000 combined.   The participation rate was unchanged, the employment population ratio decreased, and the …

Published

on

The headline jobs number in the February employment report was above expectations; however, December and January payrolls were revised down by 167,000 combined.   The participation rate was unchanged, the employment population ratio decreased, and the unemployment rate was increased to 3.9%.

Leisure and hospitality gained 58 thousand jobs in February.  At the beginning of the pandemic, in March and April of 2020, leisure and hospitality lost 8.2 million jobs, and are now down 17 thousand jobs since February 2020.  So, leisure and hospitality has now essentially added back all of the jobs lost in March and April 2020. 

Construction employment increased 23 thousand and is now 547 thousand above the pre-pandemic level. 

Manufacturing employment decreased 4 thousand jobs and is now 184 thousand above the pre-pandemic level.


Prime (25 to 54 Years Old) Participation

Since the overall participation rate is impacted by both cyclical (recession) and demographic (aging population, younger people staying in school) reasons, here is the employment-population ratio for the key working age group: 25 to 54 years old.

The 25 to 54 years old participation rate increased in February to 83.5% from 83.3% in January, and the 25 to 54 employment population ratio increased to 80.7% from 80.6% the previous month.

Both are above pre-pandemic levels.

Average Hourly Wages

WagesThe graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees from the Current Employment Statistics (CES).  

There was a huge increase at the beginning of the pandemic as lower paid employees were let go, and then the pandemic related spike reversed a year later.

Wage growth has trended down after peaking at 5.9% YoY in March 2022 and was at 4.3% YoY in February.   

Part Time for Economic Reasons

Part Time WorkersFrom the BLS report:
"The number of people employed part time for economic reasons, at 4.4 million, changed little in February. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs."
The number of persons working part time for economic reasons decreased in February to 4.36 million from 4.42 million in February. This is slightly above pre-pandemic levels.

These workers are included in the alternate measure of labor underutilization (U-6) that increased to 7.3% from 7.2% in the previous month. This is down from the record high in April 2020 of 23.0% and up from the lowest level on record (seasonally adjusted) in December 2022 (6.5%). (This series started in 1994). This measure is above the 7.0% level in February 2020 (pre-pandemic).

Unemployed over 26 Weeks

Unemployed Over 26 WeeksThis graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 1.203 million workers who have been unemployed for more than 26 weeks and still want a job, down from 1.277 million the previous month.

This is down from post-pandemic high of 4.174 million, and up from the recent low of 1.050 million.

This is close to pre-pandemic levels.

Job Streak

Through February 2024, the employment report indicated positive job growth for 38 consecutive months, putting the current streak in 5th place of the longest job streaks in US history (since 1939).

Headline Jobs, Top 10 Streaks
Year EndedStreak, Months
12019100
2199048
3200746
4197945
52024138
6 tie194333
6 tie198633
6 tie200033
9196729
10199525
1Currrent Streak

Summary:

The headline monthly jobs number was above consensus expectations; however, December and January payrolls were revised down by 167,000 combined.  The participation rate was unchanged, the employment population ratio decreased, and the unemployment rate was increased to 3.9%.  Another solid report.

Read More

Continue Reading

Trending