Listen to This Article
To hear more audio stories from publications like The New York Times, download Audm for iPhone or Android.
The plunge the U.S. economy took last spring was so precipitous that the charts from the time look, literally, like cliffs. Industrial output fell 12.7 percent in April 2020, the worst drop since records began a century earlier, as entire industries shut down virtually overnight. Airline travel, as measured by the number of people passing through T.S.A. checkpoints, fell 94 percent in a month — from two million people on March 1 to just 124,000 on April 1. In two months, employers cut 22 million jobs, more than in every recession in the last 50 years, combined.
“This thing is going to come for us all,” the economist Martha Gimbel, now an adviser to President Biden, said in April 2020, when the full extent of the damage was just beginning to hit home. She meant every industry, every income group, every class of worker — not just flight attendants and line cooks but also white-collar workers in supposedly recession-proof industries. Even sectors that were initially thriving in lockdown, like personal entertainment and home improvement, would feel the pinch once enough people saw their paychecks evaporate. No industry is recession-proof in a recession that shuts down the entire economy.
That was the dominant view at the time. But it was wrong. “This thing” didn’t come for us all. It came for the restaurants, the hotels, the movie theaters and for thousands of other businesses and millions of workers. But the ripples didn’t spread as far as economists feared. The financial system didn’t melt down. White-collar workers didn’t lose their jobs en masse. The factories and construction sites that shut down in April had mostly reopened by June.
A year later, the recovery is in full swing. Restaurants are open again. Airports are filling up. The United States has regained two-thirds of the jobs lost last spring, and is closing the remaining gap at the pace of hundreds of thousands of jobs a month. In his annual letter to shareholders a year ago, Jamie Dimon, the C.E.O. of JPMorgan Chase, warned of a “bad recession” that could rival the 2008 financial crisis; in this year’s edition, he predicted a multiyear boom.
Amid the euphoria, the government’s closely watched monthly jobs report showed that hiring in April was a quarter of what economists had expected, and down sharply from March. It was a stark reminder: The pandemic isn’t over. A robust recovery isn’t guaranteed. The U.S. economy still faces a long climb back to health — and the most vulnerable workers will, inevitably, be the last to benefit. The number of jobs held by college graduates in April was back almost to its pre-pandemic level; among those with a high school diploma or less, there is still a gaping hole of more than 3.5 million jobs.
Counting all the various Covid relief packages passed under two presidents, the United States has now pumped more than $5 trillion into the economy.
Political leaders and policymakers from President Biden on down have talked about the need to create a post-pandemic economy that is better than the one we left behind last year. The question is: Better for whom? The pre-pandemic economy, too, was praised in some corners as the best in decades, but it was still one in which the unemployment rate for Black Americans was twice that of white Americans, where someone could work a full-time job 52 weeks a year and still stay mired in poverty and where people’s toehold in the middle class was so tenuous that, within weeks of losing their jobs last spring, many were left idling in their cars in a miles-long line at a local food bank. “We need a different economy than the one we had, because the one we had clearly was not resilient,” says William Spriggs, a Howard University economist.
And yet in the next breath, Spriggs allows that he is optimistic that we actually will build a different economy this time, one in which jobs are plentiful, wages are rising and prosperity is widely shared. That optimism stems in part from the relatively strong recovery so far, and partly from the federal government’s ongoing efforts to keep it on track. But it also stems from the fact that after a crisis that laid bare the deep inequities in the U.S. economy, policymakers, journalists and voters are all less likely to accept without question a recovery that reaches only a small segment of the population.
The first two decades of the 21st century were a parade of economic disappointments: The bursting of the dot-com bubble was followed by a recession; which was followed by a “jobless recovery”; which was followed by another burst bubble, this time in housing; and another, even worse, recession; and another, even weaker, recovery.
Officially, the Great Recession ended in June 2009, but it took two years for U.S. gross domestic product to return to its pre-recession level, and six years for unemployment to do so. Long-term joblessness didn’t even stop rising until the recession had been over for nearly a year, and it didn’t get back to its pre-2008 normal until well into 2018. Year after year, forecasters predicted that this was the year that growth would finally pick up and wages would rise and prosperity would be widely shared. And year after year they were wrong. The pessimism became so ingrained that by 2019, when things were, finally, actually pretty good, the dominant economic narrative was about what would inevitably cause the next recession. (“Global pandemic” did not tend to make the list.)
Judged against that grim benchmark, this recovery already looks like an improvement. The consensus is that G.D.P. will return to its pre-pandemic level sometime this quarter, and possibly already has. The unemployment rate is on pace to get there sometime next year. Turn on CNBC these days, and the debate is not over the risks of a weak recovery but over the possibility of runaway inflation, a problem usually associated with an economy that’s running too hot, not one that’s trying to get back on its feet after a crippling recession.
This recovery is different, in part, because this recession was different. The last crisis, like most recessions, was caused by a fundamental imbalance — the housing bubble — that had to be resolved before the economy could start growing again. Construction workers and mortgage brokers had to find jobs in other industries. Households had to get out from under unsustainable debt loads. Banks and other financial institutions had to write off hundreds of billions in bad loans.
This time, there was no imbalance. Things were basically going fine, and then an outside force, what economists call an “exogenous shock,” turned the world upside-down. If we could somehow have pressed “pause” until the pandemic ended, there would have been no reason for a recession at all.
Of course, there is no “pause” button. That’s why everyone was so worried about the ripple effects last year. Restaurants can’t pay waiters when they have no customers. Waiters can’t pay rent when they have no jobs. Landlords can’t pay their mortgages when their tenants don’t pay rent. Banks can’t make new loans when borrowers stop making payments. And so on and so on, until what began as an isolated crisis caused by a specific set of circumstances has turned into a general pullback in activity across the economy.
Except that never really happened this time. Evictions, foreclosures and bankruptcies all fell last year. The financial system, as anyone who has checked their 401(k) balance lately can attest, did not collapse. Perhaps the most shocking statistic in a year of shocking economic statistics is this one: In what was, by many measures, the worst year since at least World War II, Americans’ income, in aggregate, actually rose.
How is this possible? Because of the other reason this recovery is different: the federal government. Counting all the various Covid relief packages passed under two presidents, the United States has now pumped more than $5 trillion into the economy. That dwarfs not just what the U.S. has spent in any previous recession, but also the aid provided in almost any other large country.
Here’s what that money meant in the real world: When the economy shut down last spring, the federal government stepped in to ban most evictions and made it easy for borrowers to delay payments on their mortgages and student loans. It expanded access to nutrition benefits, school-lunch programs and other emergency relief programs. The Federal Reserve bought hundreds of billions of dollars’ worth of bonds to keep credit flowing and avoid a repeat of the 2008 crisis.
Most important, the government gave people money. Lots of money. By April of this year, the typical middle-class family of four had received more than $11,000 through successive rounds of direct payments. That doesn’t include the expanded child tax credit that was part of the latest aid bill, which is worth up to $3,600 per child.
The CARES Act, which Congress passed in late March 2020, also provided $600 a week in extra unemployment benefits to laid-off workers, and created a whole new program — Pandemic Unemployment Assistance — to cover freelancers, gig workers and other people who ordinarily don’t qualify for benefits. And it created the Paycheck Protection Program, which gave out more than half a trillion dollars in low-interest — and in many cases, forgivable — loans to small businesses, most likely preventing thousands of employers from going under entirely.
The government didn’t get everything right. Much of the economic response to Covid was deeply, frustratingly flawed. People spent weeks battling their way through busy signals and overloaded websites to claim their benefits, often only to see their payments suspended because of a lost piece of paperwork or a data-entry error. Small-business aid was snapped up by businesses that didn’t really need the help (and in some cases weren’t small), while restaurants, retailers and concert venues that were truly struggling became ensnared in a tangle of red tape and, in some cases, simply gave up. Congress, which reacted with such uncharacteristic speed in the spring, quickly fell back into its old partisan patterns, with Democrats pushing for more spending, Republicans for less — resulting in a monthslong delay in aid during a critical period last fall.
“Their fiscal policy response was, in the beginning, on the money — it was exactly what we needed,” says Michelle Holder, an economist at John Jay College in New York. “But the long view was not necessarily taken into account with regard to how long it was really going to take our country to slog through this pandemic.”
But as bad as it was, the scale of the hardship would have been far worse without the abundant government response. Researchers at Columbia University found that the federal aid kept 18 million Americans out of poverty last April and 13 million in January. The image of Americans lining up at food banks is, appropriately, seared on our collective memory, and measures of food insecurity did rise in the pandemic. But government aid almost certainly saved far more people from hunger, says Diane Whitmore Schanzenbach, a Northwestern University economist who has studied food insecurity during the pandemic. She notes that data from the Census Bureau shows rates of hunger dropping sharply after government aid checks arrived in January and March.
And the aid didn’t just rescue millions of individual families. It also arguably rescued the economy itself. Last spring, for example, landlords across the country feared that tenants who had lost their jobs would start missing rent payments. But that never happened at a large scale. According to data from the National Multifamily Housing Council, which represents apartment owners and managers, 80 percent of tenants paid rent on time last May, and 95 percent paid by the end of the month — both comparable to the previous year, despite an eviction moratorium that lowered the stakes for nonpayment.
Researchers at the JPMorgan Chase Institute, using data from thousands of checking accounts, found that practically as soon as the CARES Act aid began flowing, spending among low-income consumers rebounded fully to its pre-pandemic level. In other words, unlike in virtually every other recession on record, millions of people lost their jobs, but they didn’t have to stop spending. More than anything else, that is what put us on track to avert a downward spiral.
“It doesn’t look like it’s going to happen,” says Louise Sheiner, a former Federal Reserve economist who is now at the Brookings Institution. “The fiscal support is what will prevent it from happening.”
U.S. employers added 266,000 jobs in April. In any normal time, that would represent a good month for hiring; in the two years leading up to pandemic, job growth averaged a bit under 200,000 jobs per month. But in the context of an economy that is still down more than eight million jobs from February 2020, it represented an alarming deceleration (770,000 jobs were added in March). It also further inflamed an already-simmering debate over the best way to help the economy. Democrats looked at the unexpectedly weak job growth and saw evidence of an economy still in need of government aid. Republicans looked at it and saw evidence that government aid was contributing to the problem — that enhanced unemployment benefits were discouraging people from looking for jobs, leading to a shortage of available workers.
Still, few economists expect the weakness to last. Goldman Sachs, in a note to clients after the disappointing jobs report, said it expected job gains to average 800,000 per month between May and September, which would still represent a faster recovery than after any crisis in recent memory. Speed matters because a principal lesson of the last recession is that the victims of a slow recovery are disproportionately the most disadvantaged workers. Wage growth for all but the highest-earning workers didn’t begin to pick up in earnest until nearly a decade into the recovery from the last recession. The Black unemployment rate didn’t fall below 10 percent until 2015, six years after the recession ended. (The unemployment rate never hit 10 percent for white people in the first place.)
‘There is going to be a tendency to look at those numbers and say, “Mission accomplished,’ before it is time.”
Jerome Powell, the Federal Reserve chairman, has repeatedly cited racial and other disparities as a reason for trying to revive the economy as quickly and completely as possible. People at the bottom of the income ladder enjoyed just a few years of decent gains before the pandemic cut the recovery prematurely short. The faster we can get back there, the sooner they can begin to enjoy those gains again. “Those who have historically been left behind stand the best chance of prospering in a strong economy with plentiful job opportunities,” Powell said in a speech at a National Community Reinvestment Coalition conference in early May. “Our recent history highlights both the benefits of a strong economy and the severe costs of a weak one.”
Low-income families are starting in a much different place from where they were in the last recovery. Indeed, American households are, on average, in the best financial shape in decades. Debt levels, excluding home mortgages, are lower than before the pandemic. Delinquencies and defaults are down, too. And Americans in aggregate are sitting on a mountain of cash: $6 trillion in savings as of March, more than four times as much as before the pandemic.
Averages, of course, don’t tell the full story. The wealthy, and even the merely affluent, have done exceedingly well during the pandemic. They have, by and large, kept their jobs. They have seen the value of their stock portfolios soar. And they have spent less on vacations, restaurant meals and other services. For those at the other end of the economic spectrum, the picture looks very different: Many of them lost their jobs, had no investments to start with and needed every penny of the aid they received to meet basic living expenses, if they managed to get that aid at all.
Those diverging fortunes are what commentators have called the “K-shaped recovery” — rapid gains for some, collapse for others. But that narrative is incomplete. Millions of people have been financially devastated, but many more have not been. Most low-wage workers kept their jobs, or got them back relatively quickly. Many of them will emerge from the pandemic in better financial shape than they entered it, thanks in large part to successive rounds of government aid. Low- and middle-income families came out of the last recession mired in debt, and spent years trying to climb out of that hole. That reality colored their financial decisions long after the recession was over: whether to buy a house, whether to go to college, whether to take a chance on that new job or that new career or that new city. This time around, many people will have the opportunity to make their choices free of that burden.
The lesson of both this crisis and the last one is that policy matters. In the last recession, an initially fairly robust response petered out too quickly, leading to a decade of stagnation. That hasn’t happened this time, but it still could. Unless the April jobs numbers are indicative of a broader slowdown — something hardly any forecaster thinks is especially likely — the aggregate economic statistics are going to start looking very strong in the coming months. “There is going to be a tendency to look at those numbers and say, ‘Mission accomplished,’ before it is time,” says Nela Richardson, chief economist for ADP, a payroll-processing firm.
That is what happened a decade ago. But this time, far more people are paying attention. Inside the White House, economists have zeroed in on the labor-force participation rate among Black women as a key measure of economic health. Powell, at the Fed, now talks in virtually every public appearance about race and inequality — topics that previous Fed chairs typically tiptoed around or avoided altogether. Journalists who covered the aftermath of the last recession are more likely to question the notion that the economy is good just because the unemployment rate is low.
Kristen Broady, a fellow in the Brookings Institution’s Metropolitan Policy Program, says that people are finally paying attention after years of being preached to that public-policy discussions should focus less on aggregate statistics. Recently, journalists and policymakers have been bringing up the subject with her, rather than the other way around. That, as much as anything, is cause for optimism.
“This is the first time,” she says, “that I have hope.”
Source: Read Full Article