On Friday, we will get the unemployment reports for March, and forecasters are hoping for continued improvement from the deep Covid-19 recession. But we are still hurting from that dramatic decline and the economic recovery is at risk if we relax our public health measures too soon.
We’re still feeling the economic effects of the Covid-19 recession. The economy peaked last February, according to the National Bureau of Economic Research, the organization of economists that makes the determination. The onset of the pandemic drove the economy sharply down, with real GDP in the second quarter declining at an annual rate of 31.4%. And one year later—February 2021— the Bureau of Labor Statistics (BLS) reported that total employment still was “down by 9.5 million, or 6.2 percent, from its pre-pandemic level in February 2020.”
Employment is lower in 48 of the 50 states compared to one year ago, and is barely positive only in two of them—Idaho with a one percent gain and Utah with a barely detectible increase of around three-tenths of one percent. (BLS doesn’t consider those numbers statistically significant.) The hardest hit state? Hawaii. With its dependence on tourism, jobs there are down 17.8 percent in one year.
And we fell from a high point. The unemployment rate in February 2020 was the lowest it had been in fifty years—3.5%. Is there any chance we will get back to that historic low? Goldman Sachs forecasters think so. Earlier this month, they predicted unemployment falling to 4.1% by the end of 2021, with the “possibility of a return to the pre-pandemic rate in the mid-3s this year.” Goldman’s forecasts are among the most optimistic out there, but a lot of predictions see sharp improvement in the U.S. economy coming soon.
The Federal Reserve predicts unemployment will fall to 4.5% this year. In March, the Organization for Economic Cooperation and Development (OECD), which monitors the most developed economies, increased its global growth forecast to 5.6%, a 33% increase over their December prediction. And they doubled their forecast for the U.S., projecting 6.5% growth with substantial gains in the second half of this year, a forecast similar to the Fed’s.
So everything is now rosy in the economy and job market? No.
The improving economy is made possible by progress against the coronavirus as vaccination levels increase and public health measures barely averted a collapse of our hospitals and medical care. And perhaps the biggest threat to recovery is dropping our guard against the virus.
Foolish governors are threatening both our public health and the economy by eliminating preventive behavior and restrictions too soon, leading the head of the Centers for Disease Control (CDC) to say this week that she fears “impending doom” from this reckless behavior.
That means the most immediate threat to the economy isn’t inflation, or lack of spending or consumer demand—it’s the virus, stupid. A rapid increase in caseloads and hospitalization could slow the economy, in addition to the unnecessary human toll of disease and deaths.
Economists have known this all along. Last June, Narayana Kocherlakota, a former president of the Federal Reserve Bank of Minneapolis said it well: “the better we do on public health, the better the economy will do.” Narratives of a tradeoff between public health and a healthy economy were simply false, and led to unnecessary deaths and slower recovery.
But some governors never learned this lesson, and are threatening to derail our progress against the virus. In March, Florida governor Ron DeSantis said “there are no lockdowns in Florida” as students flooded into the state for spring break. DeSantis said “the whole reason to get the vaccine is not to worry,” showing his lack of understanding about how vaccinations need to reach a certain level in order to get “herd immunity” and slow the disease.
Forbes contributor William Haseltine tells us that Florida’s reckless policies could fuel a virus surge, not just in Florida, but nationally as travelers come from out of state and then return and infect their home communities. And right on schedule, Florida’s average case count rose over 24% in the past two weeks.
So we have to hope that President Biden’s surge in vaccinations and some responsible behavior in some states will outrun a potential new wave of the virus, fueled by variants that are spread when political leaders fail to keep public health measures intact. The President is warning that “the war against Covid-19 is far from won.” He knows that the economic recovery and our public health are still at risk.