Economy doing better than expected this year – but any optimism remains very cautious
The U.S. economy may not be in as dire a situation as has been predicted ”“ but that doesn”™t mean it”™s not still a cause for considerable concern.
So said Edward Alden, the Bernard L. Schwartz senior fellow at the Council on Foreign Relations (CFR), during a CFR-sponsored webinar entitled “Economic Implications of Covid-19” on Sept. 17.
“There”™s no question the economy is stronger than a lot of economists had anticipated,” Alden said, noting that according to the latest projections by the Organization for Economic Cooperation and Development (OECD), released the day before, the U.S. economy will shrink by 3.8% this year.
That is a significant improvement over the 6.5% contraction predicted by the Federal Reserve in June, although Alden said some skepticism was still understandable.
“The not-so-good news is that unemployment is still extremely high,” he said. According to the latest figures from the Bureau of Labor Statistics, total non-farm payroll employment rose by 1.4 million in August, causing the unemployment rate to decrease to 8.4%.
While that continues a positive trend since April”™s 14.7% unemployment rate, it is still significantly higher than August 2019”™s 3.7%.
The Fed currently predicts the nation”™s unemployment rate to end the year at 7.6%, again lower than previously expected, and voted last week to keep its benchmark interest rate unchanged at a range of 0 to 0.25 percentage points ”“ where it expects it to remain until at least 2023.
Nevertheless, at a Sept. 18 news conference, Fed Chairman Jerome Powell said that some sectors of the economy will continue to struggle “until we get a vaccine that is in wide use and closely trusted ”¦. Following the public health professionals, to keep appropriate social distances and to wear masks in public, will help get the economy back to full strength.”
Powell acknowledged that “we”™re learning to engage in economic activity. People are still at risk of catching (Covid) but we”™re still able to resume economic activities.”
Alden praised the Fed”™s actions during the pandemic, which he said was “doing everything it can do,” adding that the “there”™s no question the CARES Act made a huge difference,” particularly with the additional $600 per week for the unemployed. Such a move provides “a big explanation” for the economy doing as well as it is, he said.
Still, state and local governments are facing “huge revenue shortfalls” moving forward, he said, with cuts in education and services like police and firefighting likely. “But the real concern is all about next year,” Alden added.
The OECD is projecting that the U.S. economy will grow by 4% in 2021, with global GDP up by 5% in next year.
In addition, trade is “likely to remain depressed for the rest of the year,” he said, with companies like UPS and FedEx expected to take major hits. On the other hand, Amazon, which recently said it plans to hire 100,000 people, is “clearly” one of the biggest winners in the face of the pandemic.
The continued strong performance of online sales is an example of “accelerating trends that were already out there,” Alden said, also approving of Walmart”™s decision to up its digital game a few years ago.
Alden further predicted that the live events and conferences industry may be permanently affected by the pandemic.
“How much do face-to-face meetings mean to the bottom line?” he asked, saying that the rise of Zoom and other teleconferencing tools during the pandemic has probably proven to many companies that the time and expense of flying employees around the country may no longer make financial sense. The anticipated rise of 5G, artificial intelligence and virtual reality technologies may deal a further blow to in-person meetings, he added.