It’s no surprise. The U.S. economy shrank an estimated 3.5% in 2020, the worst yearly decline since World War II. These numbers are preliminary estimates, with a final report due March 25.
Hardest hit by COVID were services like travel, restaurants and entertainment, and, somewhat ironically, health care. But widespread lockdowns keeping people at home led to increased spending on home furnishings and office equipment, autos and RVs, and garden centers. And as our local market shows, home sales were strong.
The year also ended with 6.7% of America’s workforce out of a job, down substantially from nearly 15% in April but well above pre-COVID unemployment levels under 4%. Job losses hit lower-wage workers hardest.
These numbers understate the damage to our job market. More than 6 million people working part-time want a full-time job. And 7 million more discouraged workers who want a job but aren’t currently looking aren’t even counted in the unemployment numbers.
As bad as these numbers are, America’s economy outpaced most others, with only China pulling out of its COVID-induced recession quicker than most and enjoying positive growth. And our economy showed signs of rebounding in the last months of the year, with most forecasts expecting growth to meet or exceed pre-COVID levels this year and next.
That said, the Federal Reserve Board’s policy committee, which keeps a close eye on economic conditions across the country, recently noted:
“The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook.”
What this means is that the path to recovery remains rocky, with a great deal of uncertainty ahead. And even as the economy recovers, the job market will be slower to follow.
This uncertainty — and the fact that real people lie behind these numbers — explains why the Federal Reserve, International Monetary Fund, and other leading forecasters have urged elected officials to continue efforts to support the economy and its workers and households.
The Coronavirus relief acts passed by Congress last year put money into pockets and prevented an even worse collapse in spending than we saw. But most of those benefits have expired, which is why the Joe Biden administration and many in Congress are proposing a new round of stimulus spending to support incomes and the economy.
Even as the overall economy improves, many small businesses and workers will continue to struggle. But one hopeful sign for the future is that Americans’ personal savings rate rose substantially last year. So there could be a lot of pent-up demand that will benefit our local restaurants and businesses once the virus is under control and we’re able to move about more freely.