Pedestrians walk outside the New York Stock Exchange, in the United States
Daniel Acker | Bloomberg | Getty Images
The US economy is recovering from the Covid-19 recession, but some economic “scars” can take a long time to heal, said Richmond Federal Reserve Bank President Thomas Barkin.
Economic scars refer to the damage left by crises that will suppress growth prospects in the medium or long term.
“I am hopeful that we are about to complete this recovery,” said Barkin on Monday at the Credit Suisse Asian Investment Conference, which is being held virtually this year.
“Vaccines are being launched, rates of cases and hospitalizations are falling, excess savings and fiscal stimulus should help finance the pent-up demand from consumers who are exhausted by isolation and released by vaccines and warmer weather,” he added.
The US economy contracted 3.5% in 2020 compared to a year ago, estimated the Bureau of Economic Analysis. The Organization for Economic Cooperation and Development or OECD said earlier this month that the US economy is expected to grow 6.5% this year and 4% next year.
Pandemic Scar Covid
The US labor market took about a decade to recover from the global financial crisis, but it is likely to see less long-term damage this time, said Barkin, who is a voting member of the Federal Open Market Committee.
That’s because job losses in the U.S. last year were concentrated in sectors, such as cleaning and food, where workers change jobs regularly and can therefore transition to similar jobs and other industries more quickly, he explained.
In addition, an increase in remote work arrangements means that candidates can find a new job elsewhere without moving, as long as they have the right skills and a reliable internet connection, he said.
“Despite these positive aspects, I still worry that we will see scars,” added Barkin.
Barkin said many parents, especially mothers, left their jobs to care for their children after schools and day care centers were closed to prevent the spread of Covid-19.
While there has been some recovery, the rate of parental labor force participation remains about 6 percentage points below pre-pandemic levels, Barkin said.
“If parents who have left the workforce do not return, it will have negative long-term implications for the growth potential of the United States,” he said.
The closure of schools and the shift to distance learning will also affect students without access to computers and a reliable Internet connection – potentially causing “huge losses” in the United States’ long-term levels of education and skills in the US labor market, he said. Barkin.
Other possible “scars” noted by the Richmond Fed president include:
- Small businesses have been hit hard by the pandemic, and a reduction in the number of these companies could cause the United States economy to lose “revolutionary productivity gains” that they often offer.
- While there is no immediate debt crisis in the United States, a “tremendous increase” in federal debt last year could diminish policymakers’ ability to respond to the next crisis.
To mitigate economic “scars”, policymakers must “complete the virus control process,” said Barkin.
“Scars, whether in workers, companies or communities, should be much less in a world that is able to return to normal or something similar to normal quickly than in a world where people are still afraid of getting into an elevator”, he said.
“The priority now is to distribute vaccines and reopen the economy safely. We are making good progress on this, ”he added.