Is a post-pandemic boom coming?
The U.S. economy remains mired in a pandemic winter of shuttered storefronts, high unemployment and sluggish job growth. But on Wall Street and in Washington, attention is shifting to an intriguing if indistinct prospect: a post-COVID boom.
Forecasters have expected the pandemic to be followed by a period of strong growth as businesses reopen and Americans resume their normal activities.
But in recent weeks, economists have begun to talk of something stronger: a supercharged rebound that brings down unemployment, drives up wages and may foster years of stronger growth.
There are hints that the economy has turned a corner: Retail sales jumped last month as the latest round of government aid began showing up in consumers’ bank accounts. New unemployment claims have declined from early January, although they remain high. Measures of business investment have picked up, a sign of confidence from corporate leaders.
Economists surveyed by the Federal Reserve Bank of Philadelphia this month predicted that U.S. output will increase 4.5% this year, which would make it the best year since 1999. Some expect an even stronger bounce: Economists at Goldman Sachs forecast that the economy will grow 6.8% this year and that the unemployment rate will drop to 4.1% by December, a level that took eight years to achieve after the last recession.
“We’re extremely likely to get a very high growth rate,” said Jan Hatzius, Goldman’s chief economist. “Whether it’s a boom or not, I do think it’s a V-shaped recovery,” he added, referring to a steep drop followed by a sharp rebound.
The growing optimism stems from the confluence of several factors. Coronavirus cases are falling in the United States. The vaccine rollout, although slower than hoped, is gaining steam. And largely because of trillions of dollars in federal help, the economy appears to have made it through last year with less structural damage — in the form of business failures, home foreclosures and personal bankruptcies — than many people feared.
Lastly consumers are sitting on a trillion-dollar mountain of cash, a result of months of lockdown-induced saving and successive rounds of stimulus payments. That mountain could grow if Congress approves the aid to households that President Joe Biden has proposed.
When the pandemic ends, cash could be unleashed like melting snow in the Rockies: Consumers, released from their cabin fever, compete for hotel rooms and restaurant tables. Businesses compete for employees and supplies to meet the demand. Workers who were sidelined by child care responsibilities or virus fears are drawn back to the labor force by suddenly abundant opportunities.
“There will be this big boom as pent-up demand comes through and the economy is opening,” said Ellen Zentner, chief U.S. economist for Morgan Stanley.
That vision is far from a certainty. Delays in the vaccine rollout could stall the recovery. So could new strains of the virus that render vaccines less effective. A political standoff in Washington could hold up aid for unemployed workers and struggling businesses. And even if the economy avoids all of those traps, there is unlikely to be a single moment when public health officials give an “all clear”; it could be years before people pack into bars and sports stadiums the way they did before the pandemic.
A boom also carries risks. In recent weeks, prominent economists including Lawrence H. Summers, a Treasury secretary under President Bill Clinton, have warned that Biden’s relief proposal is too large and could lead the economy to overheat, pushing up prices and forcing the Federal Reserve to bring the party to a premature end. Fed officials largely have dismissed those concerns.
Other economists fear that the rebound primarily will benefit those at the top, compounding inequities that the pandemic has widened.
Workout Anytime, a chain of 24-hour fitness clubs, was hit hard by the early stages of the pandemic, which shut down gyms nationwide. Business has since rebounded, but not to previous levels, as customers remain wary about working out in close quarters.
But Greg Maurer, a company vice president, sees better times ahead. The pandemic hasn’t dampened people’s enthusiasm for working out, he said — if anything, it has made the importance of physical fitness clearer. As soon as people are sure it’s safe, he said, he expects business to be gangbusters.
“This may be the biggest growth period we’ve ever had coming up,” he said. “There is a huge group of people out there saying, ‘I cannot wait to get back to the club.’ ”
Maurer expects business to leap ahead of its path before the virus. That’s partly because the pandemic has wiped out many smaller gym chains, leaving less competition. But it is also because the pandemic led Workout Anytime and other chains to adopt digital tools, such as online bookings and video workouts, that could open up new revenue streams.
Even if there is a strong rebound, however, economists warn that not everyone will benefit.
Kara Gray and her husband, Christopher DeSure, spent years building their small Ohio construction company into a successful business. Then the pandemic shut them down, and, having a daughter at home with a compromised immune system, they haven’t felt comfortable returning to in-person work.
With the housing market strong, Gray is confident they will be able to get back to work once the pandemic is over. But she worries they won’t be able to take full advantage of the boom. She and her husband were forced to spend the money they had set aside to buy a house, and have fallen behind on bills and run up credit card debt. That could make it hard for them to qualify for a mortgage or for a business loan to expand their company.
“It’s going to affect me and my husband longer term,” she said. “It’s not just, ‘Can I pay my bills this month?’ It’s that once this is over, I’m going to have to start all over.”