The US pandemic depression is over, but the pandemic recession has just begun

There is a straightforward narrative of the economy in 2020: The world shut down because of the coronavirus pandemic, causing an economic collapse without modern precedent. A sharp recovery began in May as businesses reopened.

That is accurate as far as it goes. But the snapback effect has masked something more worrying: We’ve entered a longer, slower grind that puts the US economy at risk for the indefinite future.

The US economy faces a long recovery.
The US economy faces a long recovery.Credit:Bloomberg

In the details of US government employment data — covering hundreds of industries — can be seen a jobs crisis that penetrates deeply into the economy. Sectors that in theory shouldn’t be much affected by the pandemic at all are showing patterns akin to a severe recession.

Business news headlines are reflecting a drumbeat of layoffs normally seen in recessions. In the last few weeks alone, oil giant Shell said it was cutting 9000 positions, with Disney eliminating 28,000 and defence giant Raytheon 15,000.


After shedding jobs earlier in the year, these sectors have brought workers back slowly, or not at all, through the US summer. Some have continued cutting positions. Employment at corporate headquarters -“management of companies and enterprises,” in the official terminology – fell by 92,000 in March and April, with another 4000 jobs lost since.

The 3.9 per cent contraction in these jobs, typically white-collar professional positions, is considerably worse than the 2.4 per cent drop during the 2008 recession.

A similar pattern is evident across dozens of industries, employing tens of millions of workers. These sectors did not endure a prolonged pandemic-induced shutdown or collapse in business. But they have shed jobs over the last half-year at rates consistent with a serious downturn.

The list is varied and includes real estate, automobile dealerships, advertising and heavy construction. It even includes truck transportation, a sector that functions as the economy’s circulatory system, given its crucial role enabling all sorts of commerce.

Overall, even if you exclude the sectors directly affected by the pandemic — air transportation; arts and entertainment; hotels; restaurants; and both private and public education — the number of jobs in America was 4.6 per cent lower in September than in February. That is not far from the 5.3 per cent contraction in total employment that took place during the entire 18 months of what is now known as the Great Recession, and around three times worse than the job losses in the 2001 recession.

Executives in these industries and analysts who study them describe two related phenomena. One is the mechanical effect of shutdowns in large swathes of the economy. But as is often the case in recessions, the pandemic has prompted many companies to accelerate shifts that were already underway.

I don’t think the severity of this downturn has been well understood yet given the bounceback over the (US) summer.

Sophia Koropeckyj, an economist at Moody’s Analytics

That implies that even as public health restrictions loosen and as vaccines get closer, the overall economy is not poised for a quick snapback to pre-pandemic levels. Rather, scarring is taking place across a much wider range of sectors than the simple narrative of shutdown versus reopening suggests.

When the economy does get back to full health, many jobs will no longer exist, and American workers will need to find other types of work — and historically, those kinds of readjustments take time.

“We do expect there to be a new steady state, but not until 2023 or 2024,” said Sophia Koropeckyj, an economist at Moody’s Analytics. In a new report, she estimates that 5 million people will find it difficult to get new work after the pandemic because their old jobs have disappeared or changed significantly. “I don’t think the severity of this downturn has been well understood yet given the bounceback over the (US) summer.”

In every downturn, some sectors are hit harder than others. The Great Recession started with the collapse of a housing bubble, and the 2001 downturn started with the bust of dot-com companies.

There are growing fears the economy is not poised for a quick snapback to pre-pandemic levels.
There are growing fears the economy is not poised for a quick snapback to pre-pandemic levels.Credit:AP

But what makes a recession a recession is that the initial economic pain, whatever its source, transmits broadly to affect nearly every industry and drive millions of people not into newer and fast-growing sectors but onto the rolls of the unemployed.

The challenge for economic policymakers is not to prevent these structural adjustments. It is to ensure that, as public health concerns wane, there is strong enough demand for goods and services across the economy that even as some jobs disappear forever, new ones are being created and the pain is short-lived. The last two recessions were followed by “jobless recoveries” in which it took years for that process to play out.

The origins of the recession of 2020 may be different from those of the previous two downturns. But so far, the way it is spreading from company to company, and industry to industry, looks awfully similar.

The New York Times

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