Full U.S. Recovery Could Take Two Years


As the coronavirus continues to play havoc with the economy, many analysts are starting to think through how the recovery will occur.

Which industries will rebound first? Will the recovery resemble a V-shape? How long will it take to reach the previous peak of employment?

The timing and speed of the recovery is largely dependent on the public feeling safe to venture back to work and to visit stores, restaurants and other establishments that have been closed for the last several weeks.

Testing for the virus and tracing its origin in communities will certainly promote confidence among consumers. A vaccine would be a game changer.
In our economic modeling, we assume that a vaccine is successfully tested, produced and dispensed by the first quarter of 2022.

In the meantime, we see the recovery taking place in two stages.
First, the supply shock that was mainly created by closing non-essential businesses and asking citizens to stay at home ends. The second stage is the eventual recovery from the demand shock that persists because of social distancing even after all businesses are allowed to open.

The first stage of the recovery has already begun in some states that have lifted restrictions such as allowing elective surgery or opening some stores, parks and beaches. This should create growth in June employment and output, but the massive contraction that took place in April and May will swamp that modest growth in June.

Real gross domestic product — the monetary value of all final goods and services produced — is expected to contract to an annualized rate of 18.4% in the second quarter and 1.0% in the third quarter. This comes after the first quarter annualized reduction of 4.8%. Real GDP should rebound at an annualized 4.4% pace in the fourth quarter.

The second stage of the recovery starts in the third quarter for many industries and the improvements to the economy become more widespread in the fourth quarter. But it does not benefit all industries equally because social distancing continues without a vaccine.
Restaurants, many retail establishments and entertainment venues should see some recovery, but their employment levels should still be less than half of their pre-coronavirus levels throughout this year.

On the other hand, employment at utilities, professional services and company headquarters should be back to 90% of pre-coronavirus levels by the fourth quarter.
The Payroll Protection Program plays an important role in the recovery by enabling small businesses to retain and bring back employees who would otherwise have been laid off during the recession.

Over the course of next year, employment in all industries should reach about 90% or more of pre-coronavirus levels with employment reaching its previous peak in the third quarter of 2022.

But the economic shutdown put into effect to reduce the spread of the virus has already and will continue to lead to many firms filing for bankruptcy.

The widespread use of a vaccine in the first quarter of 2022 should help propel the economy forward. These forecasts will change significantly if a vaccine is available sooner or if the coronavirus continues to spread into the third quarter of this year.

A version of this commentary originally appeared in the May 10 edition of The Richmond Times-Dispatch.

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Christine Chmura
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About Christine Chmura

Christine Chmura is president and chief economist at Chmura Economics & Analytics. She can be reached at chris@chmuraecon.com.
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