A “V”-Shaped Recovery – Or a Gentle Upward Slope?

So where is the economy going?  The stock market would have you believe it is coming back – and quickly.¹  That would be a so-called “V” recession.  Quickly down and just as quickly back up.  Given it was a government-ordered shutdown that caused the sudden down, maybe a removal of the shutdown will allow things to rebound suddenly.  And that could be the way things go – as long as the confidence we had before the pandemic comes back, too.  If the confidence is back, maybe the economy will be back.

That is the question, isn’t it?  Because even if the government discontinues its shutdown, are we going to discontinue our shutdown?  If there was a vaccine, it might happen – subject to the effect of all those businesses and jobs that got lost during the shutdown.

But until there is a vaccine, is the confidence that we had before the shutdown going to come back?  Some people will be confident or at least will spend like they are.  But will all of us?  Because it is going to take all of us, or at least by far most of us, being back at the level of confidence we had before the pandemic – and spending like it – to get things back where they were.

I wonder if some of us are going to be a little more cautious after all that has happened.  Some of us may decide to put a little more into savings; maybe put that new car off a year.  Maybe wait an extra six or twelve months on that cruise.  We’ve had a shock.  It would be understandable if some of us decide to build up a cushion before we start spending again, so we are better prepared for the next time.

The same could be true for businesses.  Small business owners might try to build up some reserves.  Maybe they will be a little more cautious about expanding.  Lots of big businesses got lambasted for not having enough cushion or reserves built up when the pandemic hit.  They were criticized for running up debt or spending down cash to pay for stock buybacks, instead of keeping cash in the business.²  If some businesses react to this or decide on their own that they need bigger reserves, that may mean a little less buying and/or a little less investment for the next year or two.  All of which would mean a recovery that is less of a “V” and more of a gentle upward slope.³

I have talked before about the importance of “certainty” in the economy.  (See here and here.)  The more certainty people have, the more growth we have.  When people are less certain, when they are unsure what is going to happen, the economy doesn’t grow as much because people spend less.  Which is the question for today’s economy.  How much certainty do we have?  It would seem to me that, without a vaccine, and maybe even for a while after we get one, there is going to be some uncertainty in society and in the economy.  Which might mean less of a “V”-shaped recovery and more of a gentle upward slope.  But then, if I really knew, I’d be rich.
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¹ The Dow went up over 800 points Friday because the unemployment figures showed a reduction in unemployment, instead of the expected increase.  Which raises the question of how right the numbers were.  I don’t think anybody is playing games with the numbers, but what is the range of accuracy?  As I have commented before (here and here), economic numbers, especially the most recent, are often changed as time goes by and better information comes in.  I wonder to what extent that is at play here.
 ² I have never understood this criticism of stock buybacks.  I realize that management often undertakes stock buybacks to juice the stock price and increase their compensation.  However, if a company doesn’t have a good use for the money, if it doesn’t have an expansion or investment idea that will make a good return on its money, why shouldn’t the company give it back to the shareholders, either through a dividend or through a stock buyback, and let them use the money the way they want to.  (It is my understanding that a stock buyback may be better, tax-wise, for shareholders.)
³ We hope it would be an upward slope because the alternative would be worse.