At the same time, the powerful release of pent-up demand, aided by unprecedented support from fiscal and monetary policies, is masking a lingering undercurrent of consumer skittishness that is likely to endure long after the bulk of the US population is vaccinated. The so-called long shadow of earlier major pandemics offers ample historical precedent for this scenario.
So do recent data showing signs of scarring in the services sector—especially in activities that require face-to-face contact such as travel, leisure, and entertainment. Vaccines or not, face-to-face interactions are at odds with a now deeply-engrained awareness of personal health risks that will most likely influence consumer behavior for years to come.
That’s what the numbers show. Unlike the powerful rebound of consumer spending on durables, the post-lockdown rebound of services from May to December 2020 recouped just 63% of what was lost during March and April. Unsurprisingly, services, which make up a little more than 60% of total US consumption, are being held back mainly by face-to-face activities such as transportation (travel), recreation (leisure), and restaurant dining. Collectively, these three spending categories, which accounted for fully 61% of the lockdown-induced plunge in total consumer services, remain 25% below their peak in the fourth quarter of 2019.
This same hesitation in consumer services demand is mirrored by comparable trends in the US labor market. While there has been a significant rebound of hiring since lockdowns were lifted last spring, total nonfarm jobs remain 9.9 million below the February 2020 peak.
Again, the reason is hardly surprising. Fully 83% of that shortfall has been concentrated in face-to-face private services such as transportation, leisure and hospitality, accommodations, food services, retail trade, motion pictures and sound recording, and non-public education. New research points to more of the same: post-COVID-19 headwinds in services are likely to be an enduring feature of the US labor market.
So, notwithstanding the predictable release of pent-up demand for consumer durables, face-to-face services show clear evidence—in terms of both consumer demand and employment—of permanent scarring. Consequently, with the snapback of pent-up demand for durables nearing its point of exhaustion, the recovery of the post-pandemic US economy is likely to fall well short of vaccine development’s “warp speed.”
Stephen S. Roach, former chairman of Morgan Stanley Asia and the firm's chief economist, is a senior fellow at Yale University's Jackson Institute of Global Affairs and a senior lecturer at Yale's School of Management. He is the author of "Unbalanced: The Codependency of America and China."