After plunging into the worst recession in decades amid coronavirus (COVID-19) shutdowns in 2020, the US economy has been recovering in recent months.
With alarming case spikes and a long-delayed fiscal relief package, however, the recovery momentum is slipping away.
Overshadowed even more by a behind-schedule vaccine rollout, the country will only find an uncertain and challenging economic recovery ahead.
What’s worse, the economic pain inflicted by the pandemic has rippled unevenly across a variety of sectors, companies and communities, with certain service-intensive industries, smaller firms, and low-income Americans taking a disproportionate blow. Economists called this a K-shaped recovery, which widens inequality, reports Xinhua.
DEEP RECESSION, SLOW RECOVERY
Amid COVID-19 shutdowns, the US economy shrank at an annual rate of 5.0 per cent in the first quarter of 2020, ending a decade-long economic expansion after the 2008 global financial crisis.
Then the economy went into free fall, dropping at a revised annual rate of 31.4 per cent in the second quarter as COVID-19 fallout, registering the largest decline since the government began the records in 1947.
Some 22 million jobs disappeared in March-April, pushing the employment rate up to a staggering 14.7 per cent. Economists estimated that at least 100,000 small businesses permanently closed in the spring.
As COVID-19 swept the country, US states, under pressure to reopen the economy, started to deliver plans in late April or early May, regardless of warnings from experts that many states were not yet well prepared due to lack of a plan for large-scale nationwide testing and tracing actions.
“The US situation remains bad and confused, with an absence of a national-level strategy for suppressing the virus, and therefore with no reliable strategy for the economic recovery,” Jeffrey Sachs, economics professor at Columbia University and a senior United Nations advisor, told Xinhua in April 2020.
As businesses gradually reopened, the economy saw a robust rebound in the third quarter of 2020, expanding at a revised annual rate of 33.4 per cent, though the performance still fell short of the pre-pandemic level.
Meanwhile, the unemployment rate has been falling, yet at a slowing pace in recent months. Weekly initial jobless claims, though largely trending down, increased in four weeks since the start of November, indicating a stalled recovery in the labour market.
The total number of COVID-19 cases in the United States topped 20 million on Friday, according to the Center for Systems Science and Engineering at Johns Hopkins University.
“The recovery is slowing down in the US economy because of the surge in the coronavirus,” Adam Posen, president of the Washington-based think tank Peterson Institute for International Economics, recently told Xinhua via email. “The coronavirus surge was avoidable, but unfortunately our political leadership did not succeed in preventing it.”
As businesses and families grappled with the pandemic-induced recession, lawmakers approved a 2.2-trillion-US-dollar relief package in late March 2020 to salvage the economy, followed by months of deadlock over the size and scope of the next bailout.
The two parties spent so long to reach a deal because some politicians in Washington considered it not a help for them to win the election, and House Speaker Nancy Pelosi decided to wait for a meaningful size package, Posen said.
Recent COVID-19 spikes and a slowing recovery piled extra pressure on the lawmakers, and they eventually passed a 900-billion-dollar COVID-19 relief package, along with 1.4 trillion dollars in regular government funding for the rest of the fiscal year.
The relief plan allows another round of direct payments for individuals and federal unemployment benefits, both at a reduced level, as well as more funding for the Paycheck Protection Program to support small businesses, and for schools, testing and the distribution of vaccines.
US President Donald Trump, in a last-second statement, asked Congress to boost stimulus checks to 2,000 dollars each for individuals.
Democrats embraced the outgoing Republican president’s call, but it was frowned upon by some Republicans. After a hold-up of the legislation for days, Trump signed the bipartisan package into law on Sunday night.
While the long-awaited relief package will likely cushion the impact of COVID-19, economists and some lawmakers considered it not enough to bolster the economy, calling for more aid measures and efforts to reign in the virus.
Officials of the US Federal Reserve forecasted the country’s economy to contract by 2.4 per cent in 2020, better than a previous projection in September 2020 of a 3.7-per cent decline. For this year ahead, the central bank predicted a 4.2-per cent growth.
“Though state revenues have been coming in better than feared, the absence of additional aid will lead to spending cuts and layoffs,” Ryan Sweet, senior director at Moody’s Analytics, said in an analysis, adding that the latest stimulus will likely help avoid a double-dip recession.
The United States is going through a K-shaped recovery, as some sectors, companies and workers fared fine or even better after the downturn while the rest experienced a steep decline, US President-elect Joe Biden and some economists said.
Specifically, industries like technology and retail recovered fairly well, but travel, entertainment and food services continued to hover at a low level, with the virus keeping people at home.
A Washington Post article showed that between April and September of 2020, 45 of the 50 most valuable publicly traded U.S. companies turned a profit, but that the majority of firms cut staff and gave the bulk of profits to shareholders.
Meanwhile, low-income families, those without a college degree, and Black and Hispanic Americans were hit hardest by the pandemic and are largely still struggling to recover, said a Pew Research Center survey released in September.
US Federal Reserve Chair Jerome Powell has repeatedly stressed that the burden of the virus-induced economic downturn is not evenly spread. “Those taking the brunt of the fallout are those least able to bear it,” he said.
“Recessions always accelerate inequality,” Posen told Xinhua. “In some ways, this recession is less unequal because of the size and breadth of the unemployment assistance, and because some lower-wage workers have retained their jobs in critical services, unlike in a usual recession.”
In some ways, however, “this recession is more unequal than others because the very wealthiest (top 5 per cent or 1 per cent) are gaining disproportionately from their equity shares in companies gaining market power,” he added.
Posen said the prospect for the US economy from April through December 2021 is quite good, with the situation expected to improve after the distribution of vaccines.
“What I am unable to forecast confidently is how bad things get between now and the spring with widespread vaccine distribution, and how many people — mostly women — who dropped out of the labour force to look after children and family members are able to come back into employment,” he said.