The economy will enjoy a bounce in the short run as businesses reopen from government-imposed closures. But a rapid return to the pre-Covid-19 reality of half-century low unemployment looks unlikely, especially given the uncertain course of the contagion. Northern Trust Co. economists see a jobless rate of 6.5% at the end of next year compared with February’s 3.5%.
The layoffs keep mounting. Uber Technologies Inc. last week joined such old economy stalwarts as Boeing Co. and U.S. Steel Corp. in announcing staffing cuts.
The slower and more stretched-out the recovery is, the more perilous it will be. More companies will downsize permanently or go out of business, and more Americans will leave the labor force, robbing the economy of vitality -- a particular worry for Fed Chairman Jerome Powell.
“The recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems,” Powell said Wednesday in remarks to the Peterson Institute for International Economics in Washington.
Shuttered Stores
Some 3.5 million small businesses could close their doors in the next two months and 7.5 million in the next five if the crisis persists and they don’t get more government help, according to Main Street America, a network of small companies.
One that’s at risk: Eleven Madison Park in New York, named the world’s No. 1 restaurant in 2017. Chef-owner Daniel Humm recently told Bloomberg Pursuits it may not reopen after a forced shutdown in March.
“A lot of the firms aren’t coming back,” said Harvard University Professor Kenneth Rogoff. “We’re going to see a lot of work for bankruptcy lawyers going across a lot of industries.”
Even before the epidemic, the U.S. and other industrial countries probably were stuck in what ex-Treasury Secretary Lawrence Summers labeled secular stagnation. Growth was lackluster: The U.S. expanded an average 2.3% a year in the just-ended expansion versus an almost 3% clip in the 25 prior years. Inflation and interest rates were depressed. There was too much saving and too little investment.
The contagion could make things worse. It’s not just a fear of being infected that could keep consumers out of malls and restaurants and away from sporting events. Anxiety over job losses and shrinking savings also could prompt them to husband their resources.
The proportion of people planning to take a vacation in the next six months plunged in April to its lowest level ever in the Conference Board’s monthly survey. Those looking to buy a new car dropped close to a 10-year low.