There’s a growing possibility of a W-shaped economic recovery — and it’s scary

There are growing concerns that any economic recovery later this year could prove short-lived because of a possible deadly resurgence of the novel coronavirus and a late spike in bankruptcies and defaults, a wicked combination that could cause households and businesses that barely survived the spring lockdown to go under later in the year.

White House officials have touted the possibility of a V-shaped recovery as soon as this summer, pining for a swift rebound once businesses reopen on a staggered basis. But some economists say a W-shaped recovery is increasingly likely, in part because creating a vaccine is likely to take at least a year and millions of Americans and businesses are piling up debt without an easy ability to repay it…

Something else could also cause a W pattern: a wave of bankruptcies and defaults later this year. As companies go belly up, a domino effect ensues: Workers aren’t rehired, suppliers aren’t paid, and fear rises about who will be next to fall.

“I really worry a lot about a W-shaped recovery,” said Ernie Tedeschi, a former Treasury Department economist. “People who do have jobs are going to save more than normal. That’s perfectly rational, but it delays the recovery.”