News — HUNTSVILLE, Ala. (April 8, 2020) – There’s no doubt the COVID-19 pandemic has put the United States into a recession, says an economist who is the associate dean of the College of Business at The University of Alabama in Huntsville (UAH), so now the question on everyone’s mind is when business will get back to normal.
That depends on how normal is defined, says Dr. Wafa Hakim Orman.
“Are we defining normal as everything operating the way it was in January?” she asks. “Or do we mean a different kind of normal, where some more stores and businesses are open, restaurants operate with lower capacities, but schools remain closed and concerts and other such large public events don't take place?”
The country might be able to limp back to the latter kind of normal once new infections decline to manageable levels, she says. This type of semi-normal would still need restrictions on international travel, among other things.
These rules would make a lot of sense and they're based on success stories around the world in countries like South Korea, Taiwan and Iceland, Dr. Orman says.
“Of course, their success depends on widespread mask and glove wearing, and aggressive contact tracing and testing. Now that we are slowly overcoming the shortage of tests, we can begin the second part, but we still face widespread shortages of masks and gloves. Once those are resolved, then we can get to that kind of semi-normal.”
How long will that take?
“It depends on the progression of the disease, which depends on so many other variables,” she says. Vice President Pence is now looking at mid-June, according to news media reports. “As for when things can go back to the way they were, that depends on what happens to the virus in summer and fall,” Dr. Orman says. “Does it behave like the 1918 influenza, which receded in summer and then returned with much greater lethality in the fall? Or does it gradually recede over time, like SARS and MERS did? At this point it is impossible to tell. It is so new that even the experts know very little about it.”
There are some signs of a recovery that business people and investors should look for.
“As the first few shelter in place orders are lifted, we will see if they result in a fresh surge of illnesses or if that settles down,” she says.
“If it settles down and businesses begin to reopen, we'll see if people remain cautious or dive back into normal activity. Will people be able to travel in summer? The most important indicators to keep an eye on will be payrolls and unemployment claims.”
Between now and that new normal, the U.S. will be in an economic valley.
“If we assume that no one else files for unemployment from now till the crisis ends, then with a labor force of about 165 million and an unemployment rate of 3.5 percent in February, we are looking at an unemployment rate of over 9 percent once all the numbers are processed,” says Dr. Orman.
Her unemployment prediction is based on close to 10 million new unemployment filings made in the last two weeks.
“And I'm not sure that people are done filing for unemployment,” she says. “I will be pleasantly surprised if we don't hit double digit unemployment rates. Goldman Sachs is forecasting 15 percent and I have seen other projections at 20 percent or higher.”
The current Bureau of Labor Statistics employment report covering March already shows an increase in unemployment to 4.4 percent but shutdowns only started in the last two weeks so it will take a little longer to show up in official data, she says.
“Goldman Sachs is also forecasting a rapid recovery in the fall. This is conditional on what happens to the disease itself in the fall and how people behave once restrictions are lifted,” she says. “Do we go out and spend and socialize and attend events, making up for all these months of isolation? Or do we remain cautious?”
There’s really no way of predicting the answers to these questions, she says. “Think to yourself – what would have to happen for you to feel comfortable in a large crowd at a concert or movie theater or in a bar? To shake hands with a stranger? To get a haircut? These answers will be different for different people.”
Federal and state policies will also impact the speed of a recovery. Personal and business bankruptcies probably will increase, but the rate of increase depends on the success of the government’s emergency lending programs, what happens to the uninsured and whether there will be assistance with copays and deductibles, she says.
“Congress and the Federal Reserve have put in emergency lending measures for businesses, but at least initially there are concerns about the amount available and the process to issue loans,” Dr. Orman says.
“So, if there are widespread shutdowns and bankruptcies, the question arises about how long it will take for businesses to be in a position to hire. If the assistance is timely and sufficient then it should not take very long at all.”
On the other hand, she says that people are driving less, getting in fewer accidents and contracting fewer other illnesses and that could help ease any surge in COVID-19 medical bills.
“So, it remains to be seen how many ‘excess deaths’ or illnesses over the expected amount for this time period there are.”
Various economic sectors may experience different rates of recovery unique to the challenges each faces, she says.
“Laid off workers in personal services and other such sectors that rely a lot on large groups or close contact will still not be able to spend and so their lack of consumption will continue to slow growth and recovery for a while until their jobs bounce back.”
As supply chains restart, “supply constraints will keep prices relatively high until they are resolved, other things equal, relative to what we'd normally see with such high unemployment,” she says. “So, we should be thankful for the oil price war between Russia and Saudi Arabia, since that is putting downward pressure on prices.”
The crisis may restructure how the world does business.
“I doubt global supply chains will ever look the same again,” Dr. Orman says. “Concentrating so much manufacturing in a single country so far away now seems awfully risky.”
In the stock markets, investors appear to have gotten past their initial panic and the markets have settled, she says.
“I do think hopes of a somewhat partial recovery are increasing,” Dr. Orman says, “and Congress' recently passed bills are cause for cautious optimism as long as they are implemented well.”
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