The COVID-19 recession is officially over, but the damage it wrought will remain for a long time.
The National Bureau of Economic Research declared this week that the U.S. economy bottomed out in April of last year. That means the recession was just two months long, the shortest in history.
The downturn’s official end, however, doesn’t relegate it to the history books. Last year’s short, sharp slump continues to affect the economy in ways large and small.
“If you fall a long way, which we did, things are going to be in rough shape for a long time afterward,” said Steven Fazzari, a professor of economics at Washington University.
The pandemic dramatically disrupted the labor market. More than a year into an economic recovery, the U.S. has 6.8 million fewer jobs than it had in February 2020.
Employers report a record number of job openings, but say they’re hard to fill.
“People are rethinking their attitudes about work,” said Paul Christopher, head of global market strategy at Wells Fargo Investment Institute. “We never expected the labor market to recover immediately, but it’s been unexpected that so many people would remain out of the workforce.”
The Dallas Federal Reserve Bank estimates that after February 2020, 1.5 million more people retired than the pre-pandemic trend would have predicted. Some left their jobs out of fear of infection, but if they’re financially comfortable they’re likely to stay retired. A strong stock market and rising home values make that more likely.
Fazzari thinks the jobs shortfall may not be a good measure of recovery. “If people are choosing to retire and as a result job growth is slower, that’s not a problem,” he said. “That 6.8 million number isn’t as bad as it would be after a more typical recession.”
Labor isn’t the only economic input in short supply. A semiconductor shortage has hampered auto production, and other supply-chain snags have hit many industries. Taco Bell said this week that popular menu items would be unavailable because of “national ingredient shortages.”
Those shortages have helped send consumer prices up 5.4% in the past year. The Federal Reserve calls the inflation spike “transitory,” but that doesn’t make it any less painful to consumers, and most economists think inflation will remain elevated for at least another year.
The ways Americans responded to the COVID-19 recession will have long-lasting consequences — some negative, some positive, some hard to predict. On the plus side, the pandemic accelerated the adoption of videoconferencing, e-commerce and other technologies. If those make workers more productive, they could boost wages and speed economic growth.
Trillions of dollars in government relief spending worked to shorten the downturn, but raised the federal budget deficit to levels not seen since World War II. It will be years, even decades, before we know how that affects the economy.
“We borrowed our way to prosperity,” said Scott Colbert, chief economist at Commerce Trust Co. “What does that cost, either in debt service or crowding out of other spending or a reduced ability to respond to future problems?”
Some of the recession’s costs have yet to be tallied: How many people will lose their homes when moratoriums on evictions and foreclosures eventually end? How many restaurants and other small businesses will eventually fail because of the losses they suffered last year?