The U.S. economy is displaying remarkable resilience, and a V-shaped recovery could take shape if Congress and the administration can agree on another, well-targeted stimulus package soon.
History indicates that the economy does not have to suffer permanent damage from the COVID-19 recession. The Spanish Flu in 1918 was followed by the Roaring Twenties, and the terribly tough flu pandemic of 1957 bore little lasting effect on the economy.
Past pandemics forced temporary closures of schools and businesses in many cities, but the COVID-19 shutdown was historic in scope. This time shutdowns took at least a quarter of the economy offline — that’s a Great Depression-scale contraction.
Americans live in much greater affluence than in the 1920s and 1950s, when smaller farms and factory jobs dominated employment, incomes and access to credit were thinner, banking more vulnerable and the country really couldn’t afford a wholesale closure of so many businesses.
Hitting the emergency break this time left a huge hole — unemployment jumped from 3.5 percent in February to 14.7 in April — wiping away all the jobs created by the Obama-Trump expansion. And the Bureau of Labor Statistics cautioned that with the chaos of the shutdown — how could it effectively survey employers with closed offices — the job losses were indeed much higher.
Retail sales tallies, which for an economist is like a patient’s pulse to a physician, were similarly depressed. Nearly half of all households lost income, and consumers could not get to stores, access many medical services or sit in a restaurant.
The sun always shines again.
In May, the economy added 2.5 million new jobs and retail sales rebounded, the latter are now only down just 6.1 percent from a year ago. With more to come as stores and restaurants continue to reopen, it’s hard to see how the U.S. economy could be downsized by next year but the devil is in the details.
Abrupt events like the COVID-19 shutdown or a financial crisis tend to weed out weak businesses, like Hertz, which borrowed excessively when the economy was expanding but never really turned decent profits.
This time public health policy limits recovery — the financial legacy of shutdowns and 50 percent capacity limits make many restaurants and their suppliers unviable. This repeats elsewhere — the absence of professional sports is contributing to a longer-term pullback in advertising spending.
As overall employment rebounded in May, jobs in the information sector contracted across the board, and that includes publishing and newspapers, motion pictures and recording, broadcasting, telecommunications, data processing and the Internet.
As many on temporary layoffs returned to work in May, 295,000 workers lost their jobs permanently, because spending patterns will be markedly different even after we have a vaccine and the masks are gone. Folks will Zoom more and commute and fly less, eat more delivered meals and fewer in restaurants and require less office space in city centers.
Millennials and their younger siblings, who don’t have the same wealth in retirement accounts and home equity as their elders, took a terrible hit from job losses. State and local governments shed 1.5 million jobs in April and May.
State finances are not going to improve enough to reverse those job losses and without an aid package from Washington, those firings will multiply. Even before COVID-19, the financial plight of younger Americans had pushed down U.S. birth rates to precipitously low levels with terrible long-term consequences for maintaining labor force growth and quality.
The governors have asked for $500 billion in temporary assistance — much less expensive than the politically motivated $3 trillion bill House Democrats have fashioned but that stands little prospect for passing the Senate.
Politicians on both sides like to talk about relief from higher education debt when campaigning for office but never get around to addressing it or the skyrocketing cost of college tuition. Just as the banks needed fresh capital and regulatory scrutiny after the financial crisis, it’s high time university finances were put under a congressional magnifying glass and regulated.
The federal highway funding law expires in September, and both congressional Democrats and the president have expressed interest in a broad infrastructure bill that would address issues such as 5G build-out in rural areas and green investments.
This is a great time to resolve long festering issues like student debt and inadequate attention to the country’s aging roads, rails and technology. That would move folks from industries that have permanently contracted into new more productive activities.
• Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.