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What will the US economic recovery look like?
WASHINGTON, Feb 28, 2021 (BSS/AFP) – The US economy is rebounding faster
than expected from the Covid-19 recession, outperforming the most pessimistic
estimates. But some areas remain largely shut down. So what will recovery
look like?
– How fast will the economy grow? –
The International Monetary Fund estimates the GDP of the United States will
expand by 5.1 percent this year, after contracting by 3.5 percent in 2020 as
the pandemic forced lockdowns that shuttered businesses nationwide.
But economists think the growth rate could accelerate further.
The nearly $3 trillion in government stimulus programs last year, including
a $900 billion measure approved in late December, were key to helping the US
economy bounce back.
And Congress is moving toward approving President Joe Biden’s $1.9 trillion
rescue package, which will provide more support for businesses, families and
state and local jobs.
Federal Reserve Chair Jerome Powell acknowledged growth could hit 6.0
percent, while private forecasters like Gregory Daco of Oxford Economics said
it could break 7.0 percent.
The quick recovery has raised concerns that price increases could spiral
higher, but Powell tamped down those fears, saying inflationary spikes in
coming months are unlikely to last.
And the Fed has pledged to keep interest rates low until employment
recovers and inflation stays above 2.0 percent for some time.
– When will the jobs come back? –
As businesses were able to reopen and adapt to new Covid-19 restrictions,
the country regained about half of the 20 million jobs lost in the early
weeks of the pandemic.
Many of the remaining 10 million jobs are in the hardest-hit service
sectors like hotels and restaurants — losses that fell especially hard on
Black and Hispanic workers.
And millions more have seen their hours cut or have left the labor force
entirely, including large numbers of women who are taking care of children.
Those jobs and hours likely will not come back until the vaccine rollout
reaches a critical mass of Americans, allowing people to resume normal
activities without fear so businesses and schools can fully reopen.
The official unemployment rate — known as U-3 — hit 6.3 percent in
January, a dramatic worsening from 3.5 percent a year earlier. For Black
workers the rate was 9.2 percent.
But when including individuals who have been discouraged from looking for
work, or who are working part-time but want a full-time position, the broader
U-6 rate was 11.1 percent.
“The aid and stimulus are critical to bridging Covid-tainted waters,
stemming employment losses … and priming the pump for a more robust
recovery once social distancing measures are lifted,” economist Diane Swonk
of Grant Thornton said.
Moody’s Analytics estimates Biden’s stimulus plan would create 7.5 million
jobs this year alone.
– Which sectors are rebounding fastest? –
The housing market, strong before the pandemic, paused only briefly before
roaring back hotter than before.
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Fueled by rock-bottom mortgage rates — and with remote work perhaps
starting a trend of people moving out of congested areas — sales of new and
existing homes have jumped about 20 percent above the pre-pandemic level.
But supplies have fallen as homebuilders struggle to keep up with demand,
driving prices higher.
Manufacturing, too, has recovered steadily since last summer, although
output remains below where it was in early 2020.
And even as consumers have been forced to curtail activities, they have
opened their wallets to spend freely on autos, electronics, furniture, and
building and gardening supplies.
Online retailers have been the big winners, with a sales increase of just
under 30 percent over the year.
– Where is the damage still visible? –
The most visible impact of the recession is in the travel, hospitality and
entertainment industry, which likely will come back to life quickly once
people are able to take vacations and enjoy concerts, movies or plays.
But economists have warned about the potential for more permanent scars on
the economy in the wake of the pandemic.
Thousands of shops and restaurants have closed permanently, and there is a
risk of a wave of bankruptcies if the recovery doesn’t come soon enough for
some heavily indebted firms.
State and local governments, which typically cannot borrow to finance their
operations, are facing the possibility of slashing teachers, police and
firefighters from the payroll to compensate for massive relief spending.
And homeowners and renters currently are protected by moratoriums on
foreclosures and evictions, but their fate will depend on what happens to
their past-due mortgage and rent payments once those moratoriums expire.
“We must continue to provide economic support to our citizens, creating a
bridge to the end of the pandemic,” US Treasury Secretary Janet Yellen said
this week.
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