Social distancing requirements, while essential to preventing major spikes in COVID-19 cases, have caused unprecedented disruptions to the US economy.
Although the pace of recovery will depend on many unknown (and currently unknowable) factors, including health outcomes as the economy begins to reopen, our most recent forecasts account for the information presently available in a systematic manner.
Total U.S. nonfarm payroll employment fell by 20.5 million in April, and the unemployment rate rose to 14.7 percent. The hardest hit industries are those which had to largely shut down, including travel-oriented segments such as hotels and motels, as well as restaurants and bars. Declines also occurred in health care and social assistance (largely due to lost jobs in childcare), professional and business services, retail trade (except grocery stores and a few other categories), and construction. While portions of the health care system are strained due to the virus, others are seeing notable reductions as non-essential surgeries, treatments, dental appointments, and office visits are delayed. Another industry with major declines is mining (which includes oil and gas), as COVID-related demand reductions across the globe and a supply shock caused crude prices to plummet.
Our most recent short-term projections for the national economy indicate a decline in real gross product at a -5.47 percent rate in 2020, representing a loss of more than $1.0 trillion. For 2021, real gross product is forecast to grow by $973.7 billion (a 5.40 percent rate) and almost get back to 2019 levels. Job losses on an annualized basis are forecast to exceed 9.8 million in 2020 (a 6.49 percent decline), with 5.19 percent growth expected in 2021. Employment will likely not reach 2019 levels until 2022, with about two to five years required to achieve pre-virus baseline expectations (as long as the reopening is well managed without additional major shutdowns). Note that near-term monthly losses are much higher, but recovery is expected to begin in earnest later this year.
The basic structure of the economy was sound prior to the outbreak, and the current downturn is essentially caused by fallout from a health crisis. Assuming that through aggressive monetary policy, targeted fiscal stimulus, and other measures the basic economic structure remains in place and no further interruptions occur, the recovery should be relatively rapid once the virus risk has abated.
Economic patterns over the next few years are likely to be quite different from expectations prior to the pandemic (as reflected in these projections). However, there is not yet evidence that the long-term outlook will be significantly impaired. A disruption of this magnitude will change certain aspects of economic behavior on an ongoing basis but should not dampen overall expansion prospects in the decades to come. Be safe!!
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