Covid at 2 years

COVID-19 at the 2-year mark:

taking stock of the pandemic’s economic influence

Howard Frank, director of FIU’s Jorge M. Pérez Metropolitan Center and a professor of public policy and administration, shares his perspective on how the economy has changed since the pandemic began

March 2022 marked the second anniversary of Covid-19’s onset. Since it began, more than 1 million Americans have died from the pandemic and the economy has experienced a lockdown-driven recession and significant recovery. With the Omicron variant receding and widespread diffusion of vaccines and treatments, there is hope COVID is enroute to endemic status.

Thus, the second anniversary provides an opportunity for taking stock of where the economy is heading.

Positives

Unemployment is at 3.6%, well below the COVID peak of nearly 15 percent in April 2020. Retail sales are strong, reflecting pent-up consumer demand. FICO scores have reached an all-time high of 716, with the greatest gains coming in households in the “Fair” range of 550-599; this reflects lower unemployment, stronger family balance sheets and lender flexibility during the crisis. Inflation is running hot — 7.5% year-over-year, the highest in 40 years. Nevertheless, there is evidence of moderation in consumer durables such as automobiles as supply bottlenecks moderate. Labor force participation has inched up from its pandemic lows.

Overall

The American economy is like a star athlete playing through psychic, physical and economic pain. Our current inflation is akin to that experienced after World War II, when the end of wage-price controls and rationing lead to a surge in demand that outstripped supply. That took two years to resolve. History may repeat itself.

Could a “Deltacron” variant that combines Delta’s health outcomes with Omicron’s transmissibility derail economic recovery? Yes. But that wildcard is impossible to predict and difficult to discount. Meanwhile, consumer spending — 70 percent of the American economy — remains strong.

Negatives

Inflation has overtaken COVID as the No.1 issue in public polling, an understandable result of inflation-adjusted wages falling 3.4 percent behind the cost of living. The “Great Resignation” has resulted in a continuation of longstanding declines in labor force participation, particularly among the 55+ age group and women with childrearing responsibilities. The continued decline in labor force participation will contribute to short- and long-term economic sluggishness. Impending Federal Reserve rate hikes will further impede growth and are already causing stock market gyrations reflecting winners and losers in the emerging post-COVID economy.