Early on in the days of the Covid-19 outbreak, much of the conversation among leaders and the media centered on to what extent economic sacrifices should be made in an effort to combat the virus. The government shut down broad swaths of the economy; the logic was that the slowdown in activity would give the country time to get Covid-19 under control. And as soon as that happened, the push began to open things back up. The argument was that the economy just couldn’t afford such drastic measures.
Months later, the economy has improved faster than some expected, but the recovery is not happening for everyone, and it’s beginning to stall. Much of the stimulus from the federal government has dried up, and it’s not clear what, if anything, more is to come. Meanwhile, the virus rages on, with new cases now at levels they were back in July. More of the economy is open, but consumers are still hesitant to get back to normal amid so much uncertainty and with a deadly virus still spreading.
“You have to get a handle on the pandemic, but there continues to be this argument about how we just need to open up,” said Trevon Logan, an economist at Ohio State University and research associate at the National Bureau of Economic Research. “It is the case that opening up is not going to be enough, and what I mean by that is that opening up is certainly going to be a problem for us if we’re still having a pandemic.”
Days before the 2020 election, the United States economy is in a recovery that is uneven and uncertain. People at the top of the economic ladder are getting back to normal much faster than those at the bottom, and certain companies and industries are faring much better than others. Whereas many of the closures and job losses at the outset of the pandemic were temporary, they are increasingly becoming permanent. The country is failing on coronavirus, and it’s failing on keeping the economy afloat in the meantime.
“It seems like we’ve come up with: ‘Let’s just wait and see.’ That’s just a devastating choice that we’re making,” said Janelle Jones, managing director of policy and research at the Groundwork Collaborative.
The foundation of a healthy economy is a healthy workforce, and right now, America doesn’t have either one.
The pandemic isn’t over, but a lot of government support for ordinary people is
“The rebound has been faster than initially anticipated, but that does not mean that the economy is in the clear,” said Gregory Daco, chief US economist at Oxford Economics. “If anything, today’s economy continues to show a significant shortfall in activity relative to pre-Covid levels, and that is despite what has been a very strong fiscal impulse to stimulate demand.”
To put it more plainly, the economy isn’t currently as bad as some feared, but it’s not great, either, and the initial rebound is slowing down fast.
As Vox’s Matt Yglesias laid out in September, GDP plunged in the second quarter of the year, and millions of Americans lost their jobs, either temporarily or permanently. But just because people were out of work did not mean they were out of money, thanks to the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, the $2.2 trillion stimulus President Donald Trump signed into law in March. It included a $1,200 stimulus check to most American adults and an extra $600 in weekly unemployment insurance benefits through the end of July, which allowed people to stay afloat and even save.
“A lot of the transfers that were done with the CARES Act seem to have more legs on them to the extent that they helped smooth out consumption over a longer period,” said Skanda Amarnath, director of research and analysis at the think tank Employ America. But the economy isn’t zooming back.
The recovery in the labor market appears to be stalling, with an estimated 661,000 jobs added in September, far below the 1.4 million jobs added in August and 1.7 million added in July. More and more of the job losses happening now are permanent — and coming at a time when extra government assistance has dried up. Last week, the number of new jobless claims filed went up.
“It’s very clear that labor market stress is far from over,” said Elise Gould, an economist at the Economic Policy Institute, a progressive think tank.
The New York Times recently published banking data from 80,000 households on unemployment showing that as soon as expanded unemployment benefits expired in July, people started to go through their savings fast. Eight million people are estimated to have fallen into poverty since CARES Act benefits expired. People are increasingly at risk of having their utilities shut off, facing evictions and foreclosures, and food insecurity.
How is the economy doing? It depends on whom you ask.
Some parts of the economy are doing much better than others, and the same goes for people. To put it plainly, if you’ve got a lot of money tied up in the stock market, you’re doing much, much better than if you are a service worker.
Early on in the pandemic, you heard a lot of optimistic talk about a “V-shaped recovery,” which basically means the economy would dip and then go back to where it was, literally shaped like a V. But now, some economics and politicians are increasingly discussing the likelihood of a K-shaped recovery, which basically means one where the rich recover quicker than everyone else. It looks like the letter K — two lines starting together and then diverging as they branch out. The line representing high-income people goes up, and the line representing low-income people goes down.
“Millionaires and billionaires like [Trump], in the middle of the Covid crisis, have done very well,” said Vice President Joe Biden in the first presidential debate, noting how much money some billionaires have added to their wealth during the pandemic. “But you folks at home, you folks living in Scranton and Claymont and all the small towns and working class towns in America, how well are you doing?”
The unemployment rate fell to 7.9 percent in September, but if you dig into the numbers, you see an uneven picture. Women are dropping out of the workforce at a staggering rate, as school closures and the burden of childcare often falls on women. For white workers, the unemployment rate is 7 percent, but for Black workers, it is 12.1 percent, and for Hispanic workers, 10.3 percent.
“The gains that black workers have made since the Great Recession were basically wiped out in the first couple of months of Covid,” Jones said. If the national unemployment rate were 12 percent, as it is for Black workers, she added, “we would not be taking our foot off the gas.”
Recessions are always uneven, but this appears on track to be even more so.
It’s not just people who are experiencing the economy differently, it’s also different industries and types of businesses. Amazon is consolidating an enormous amount of business and power right now, the mom and pop store on the corner isn’t doing so hot.
“What I see is two real stories going on. In some segments, the economy is recovering and rebounding in a very robust way,” said Raphael Bostic, president of the Federal Reserve Bank of Atlanta, in an interview on CBS’s Face the Nation on Sunday. “But in other segments, things like hotels and restaurants, small businesses in particularly minority and lower-income communities, those places are seeing much more difficult situations.”
He said that the virus has put a “wedge” in the economy.
Retail sales went up in September, but as mentioned, because it’s unclear whether more government support will happen for people, whether that will continue could change fast. And what people are spending on is also different — they’re not traveling or going out as much, but they are spending at the grocery store and embarking in home improvement projects.
“It seems like we have a stronger manufacturing recovery underway, but we don’t have that in the service side,” Amarnath said. “We’re hitting some diminishing returns.”
Lasting — and often invisible — damage is being done
The longer the pandemic goes on, the more permanent the changes in the US economy become, and the hole Americans are in gets bigger and harder to dig out of. Companies that tried to hold out finally lay off workers (Disney, Allstate, the airlines), small businesses that could handle a couple of months of uncertainty close their doors. Once eviction moratoriums end, people who haven’t been able to make rent still face the prospect of losing their homes — not to mention debt.
Again, this all playing out in an unequal manner and will have long-lasting effects that privilege some groups and industries over others. Women who have had to leave the workforce won’t have an easy time getting back in. Unemployed Black workers will lose income that it will take a long time to recover.
Gould emphasized that getting the economy back to where it was before the pandemic isn’t really even the right conversation, because we’ve already missed out on months of growth that would have happened otherwise. “If you had continued adding jobs like we had been going into February and March, then we would have to add even more jobs to the shortfall that we’re experiencing now,” she said.
Ultimately, the virus and the economy are deeply intertwined, and you just can’t fix the latter until you fix the former. The federal government can try to intervene in the economy to at least patch the problem temporarily, but it’s not even doing that right now.
“This crisis is far worse than the one that we faced in 2008,” Sen. Elizabeth Warren, who was in the trenches of the last downturn, recently told me. “It started with a pandemic, and the economic fallout can’t be arrested until the pandemic is under control.”
The virus has rendered much of what’s happening in the economy invisible, to the point that we likely won’t know the damage that is done until it’s over. Because we’re not going out as much, talking to people, or frequenting the places we usually do, we’re not getting a full picture of what is happening. You might not know your favorite bar or restaurant shut down until you think it would have reopened.
“A lot of the things that are going on in the economy, in my perspective, are sort of hidden,” Logan said. One can observe uncertainty in the stock market day-to-day as it fluctuates, but it’s harder to gauge the uncertainty of households worried about their income, the social safety net, just putting food on the table. “Most of what’s going on, we have no idea it’s going on, because it’s going on behind closed doors.”
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