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Economy

The K-Shaped Economic Recovery Gets Much Worse

Among the most visible debates as the United States moves well into the fourth quarter is whether the COVID-19 pandemic and its economic fallout will trigger another recession that starts late this year or early next. A vaccine will come too late to keep the spread of the disease from a merciless rise over the winter months. Stimulus packages, particularly the CARES Act, give jobless benefits to over 12 million people but will end in a month. On the other hand, there is little evidence that the highest income people in America have been affected much economically. Evidence from high-end home sales to a hockey stick stock market shows the rich continue to grow richer.

Economic recovery in which the rich grow richer and most of the balance of the population is left behind is said to be K-shaped. When the overall economy recovers quickly from the effects of the pandemic, that is deemed a V-shaped recovery. It could drop again from its initial recovery, which would form a W-shaped recovery. It may take several months to decide which of those apply.

In the meantime, the end of stimulus for the jobless means a rise in poverty level, evictions and even hunger. Homeless shelters in many cities already have started to overflow. The number of people who actually claim they or their families go without food for some part of a week has risen as well.

For the middle class, the specter of large company layoffs has not gone away. Business owners helped by the Paycheck Protection Program find that money is gone. Some businesses that will be further damaged by the resurgence of COVID-19 may have to close. Certainly, tens of thousands of restaurants, bars and hotels will suffer. So will major industries, led by airlines and entertainment.

Another stimulus package could be introduced under the Biden administration, but there may be a split government in which the Republicans control the Senate and can block any effort to offer financial aid to millions of people and thousands of businesses.

Many economists claim that without financial help it is unavoidable the people at the low end of the income scale will not only suffer hardship but will cease to be consumers. Those at the high end already have the protection of net worths that are actually rising.

The economy has reached a crossroads, and the K-shaped recovery has started to worsen.

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Business

Boeing Has No Path To Recovery

Shares of The Boeing Company (NYSE: BA), once one of the great industrial companies of the world, remain down 39% so far in 2020, against the S&P 500 which is up 10%. No one should expect a recovery.

Boeing has received some good news. Its crash-prone 737 MAX will return to the skies over the U.S. and Europe. But, the airline industry has been scorched by a drop in passenger traffic due to COVID-19. Even with a vaccine, many experts believe normal passenger traffic will not return for years. In the meantime, carriers, some of which are bankrupt and other teetering in that direction, will not need new planes at any time in the foreseeable future. Boeing’s customers are as badly crippled as it is, if not worse.

Boeing’s third-quarter results were ugly. Revenue dropped 29% to $14.1 billion. Boeing lost $401 million compared to a profit of $1.3 billion in the year-earlier period. Negative operating cash flow was $4.8 billion compared with a negative cash flow of $2.4 billion in the same period a year ago.

The revenue picture was worse for Boeing’s commercial aircraft business, down 56% to $3.6 billion. At least its Defense, Space & Security operations did much better. Revenue was off only 2% to $6.8 billion. Boeing should consider spinning this business out to give investors something of substance to hold onto.

President and Chief Executive Officer Dave Calhoun commented as the results were released: “The global pandemic continued to add pressure to our business this quarter, and we’re aligning to this new reality by closely managing our liquidity and transforming our enterprise to be sharper, more resilient and more sustainable for the long term.”

The problem is that the pandemic’s effects will go on for years.

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