By Dr. Mike Walden
Even though, like many, I have been working at home for the past eight months, I am still able to interact with people. Thanks to modern technology, my presentations to groups have continued. As a result, the questions about our future economy pour in, either during meetings or from emails afterward. Unfortunately, I detect much fear and worry in the questions about our economic future. I always try to be honest in my answers, but sometimes just looking at the questions from a different viewpoint helps folks.
So here I’ll present my responses to four of the questions I’ve recently been asked. I’ll let you decide if my answers allay your fears or not. Either way, hopefully my responses will provide you with useful information and a sound perspective for looking at our uncertain future.
Will the Economy Ever Be the Same? The short answer is “no”. Most experts think the COVID-19 pandemic has permanently changed our economy in several ways. One way is replacing in-person interaction with remote interaction. We’ve seen remote working, remote education and remote medicine all expand during the pandemic. While each has pluses and minuses, the prediction is remote interaction will stay with us at much higher levels than prior to the pandemic.
We’ll also see permanent changes in services that still require personal interactions. Where possible, these interactions will be minimized. Hotel check-ins will be done using a machine, and much of hotel cleaning will be accomplished with robots. Indeed, they’ll be a production boom for robots after the pandemic, as they replace people in many personal contacts. My first job at McDonald’s running the fryer will probably soon be done by a robot.
Is there a Big Economic Crash Ahead? Many of those contacting me worry the loss of jobs and the big jump in the national debt will soon send the economy into a tailspin. They’re concerned the recession we’ve had this year will turn into a deep depression in coming years.
Let me take the job part first. Total jobs in the state today are still seven percent under their level at the beginning of the year. Yet this is much better than the 17 percent job deficit in April. Thus, we’ve made progress. I expect the progress will continue, but there will be two problems. The pace of adding jobs will be slow. To wipe out the remaining seven percent job deficit will likely take a year or longer. Second, the jobs coming back won’t all be the same as the jobs lost. We’ll need considerable time and money devoted to worker retraining. The faster we can accomplish this retraining, the better-off we’ll be.
The federal government has added $3 trillion to the national debt during the pandemic. Fortunately, with interest rates at historic lows, making the payments on the debt shouldn’t be an issue. However, this doesn’t mean the borrowing won’t have costs. Money paid on the national debt is money that could have been used in some other way. The potential benefits of those alternative uses are a cost. Some economic research suggests more borrowing today results in slower economic growth in the future. Still, a major economic “crash” is unlikely.
When Will the Economy Be Back to Close to Normal? Economists have had a surprising amount of agreement on this question. At the start of the pandemic, there was consensus the resulting economic recession would be deep but short, and the recovery would initially be strong but afterward much slower. Indeed, this forecast appears to be on track. In the second quarter (April, May, June), the economy contracted nine percent (33 percent on an annualized basis). Then in the third quarter (July, August, September), the economy bounced back by seven percent (31 percent on an annualized basis). But advance indicators, such as job gains, strongly suggest the fourth quarter growth rate will be much slower at one percent, and this slower rate will continue throughout 2021. These numbers indicate the economy won’t return to its pre-pandemic size until late 2021 or early 2022.
Will North Carolina’s Economy Be Better or Worse After the Pandemic? North Carolina’s economic recovery from the pandemic will follow the nation’s. Crucial for both will be two virus related factors: our ability to contain and address the virus’ winter surge, and the approval and distribution of vaccines. Setbacks to either, such as renewed business closures or problems with getting an effective vaccine to people, will delay the economic recovery in the country and North Carolina.
In the post-pandemic economy, I expect North Carolina’s growth to continue to exceed national economic growth. I think our vibrant, yet less dense, metropolitan areas will be attractive to households and businesses in the urban Northeast – as well as Southeastern cities like Atlanta – who are worried about future viruses and their fast spread in crowded areas.
With our state’s still important textile industry and our significant pharmaceutical sector, I see new business opportunities related to the rebuilding of the domestic medical supplies sector (gowns, masks, pharmaceutical treatments). Also, if companies nationwide reconfigure their supply chains to reduce international dependence, there could be new possibilities for North Carolina’s broad manufacturing sector.
I recently told a group that 2020 will be remembered as a turning point in our history in many ways – socially, culturally, and economically. When we are well past this year, each of us will have to decide where the turning points led us.
Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.