Economist: Taxes, jobs to factor in recovery
Consumer confidence is another concern
The path toward an economic recovery is still uncertain, but there are a few key variables to keep an eye on, according to Nick Sly, economist and Denver branch executive of the Federal Reserve Bank of Kansas City.
During a webinar hosted Wednesday by the Economic Forum of Albuquerque, Sly said any economic recovery will be tied inexorably to the path of the pandemic in the near term.
Over the longer term, however, there are a few useful indicators that may determine how long the economic downturn lingers once the virus abates, including how quickly unemployed workers are able to return to their jobs.
“If that participation rate starts to pick up relatively rapidly, that would be a good indicator to me that businesses are going to find the workers they need,” Sly said.
Sly noted that financial markets, jobless claims and overall business activity have each stabilized after steep declines earlier in the year. Nationwide, the unemployment rate peaked at 14.7% in April but had dropped to 8.4% by August, according to data from the U.S. Bureau of Labor Statistics.
Despite the stabilization, Sly said, there are a few longterm potential impacts of the economic downturn to remain wary of, particularly in New Mexico.
Declining tax revenues mean that state and local governments will have less money available, which stands to hurt states such as New Mexico that rely heavily on government spending.
“Those declines in tax revenue ... will be a risk for us to
continue monitoring,” Sly said.
Sly also said he’s concerned consumers may not feel confident enough to return to their pre-virus spending patterns. That, in turn, could create a situation in which unemployed workers remain out of work for a long time, losing key job skills and becoming less willing to look for a job.
“Persistent high unemployment can lead to lasting damage to the economy,” Sly said.
For that reason, Sly said, reengaging workers who have lost their jobs is going to be a priority, particularly in states with a high percentage of workers in service sector jobs.
“I think this risk is particularly salient in New Mexico,” Sly said.
He added that uncertainty itself is a barrier to economic recovery, as companies become more cautious about rehiring employees because they don’t know what to expect from the path of the virus and, to a lesser extent, the presidential election.
On the labor side, the uncertainty around the availability and safety of work makes people nervous about returning.
“In that sense, the uncertainty … itself is a barrier to the resumption of economic activity,” Sly said.