The U.S. has made an almost astonishingly quick economic recovery from the quarantines of early 2020, according to a Federal Reserve economist, but certain metrics, including falling labor force participation rates, suggest the country is not totally in the clear.
In a virtual appearance before a meeting of the Connecticut Business & Industry Association on Friday, Andrew Haughwout, a senior vice president and policy leader at the Federal Reserve Bank of New York, said the national economy sustained a “huge hit” but is currently undergoing a “very sharp recovery.”
The country is now on pace to return to pre-crisis employment rates within 18 months to two years of the 2020 lockdowns, a feat that took several years to accomplish after the Great Recession of the late 2000s, Haughwout noted. GDP is also stabilizing, and certain states are now adding back more jobs than before the COVID-19 pandemic began.
Still, there’s cause for concern.
Many Americans are now sitting on more disposable income than they’ve had in years, Haughwout said, but instead of spending it, they’re saving it. And though data suggests that consumption of durable and non-durable goods has made a healthy rebound, people are not shelling out what they used to on services, a category that includes restaurant meals and entertainment options.
While this trend could be a product of Americans simply not having any place to spend this income, Haughwout said, it might also indicate tough times ahead for the service sector if such behavior continues.
Also worrying is the decline in the country’s labor force participation rate. That figure has been falling noticeably since the Great Recession, and the pandemic has accelerated that trend.
“There’s still a long way to go,” Haughwout said. “Signals from the labor market show there’s substantial slack in the economy.”
When asked by CBIA President and CEO Chris DiPentima why so many businesses are struggling to find workers despite the comparatively high levels of unemployment, Haughwout said the likely causes are complex and go beyond economics.
“There have been changes in the non-economic part of going to work,” he said. “In this case there’s another dimension — the risk of getting sick. And also the responsibility of taking care of one’s family.”
According to Haughwout, one of the reasons why labor force participation is down is because so many women have left the workforce to care for children or other family members.
“The virus has changed our calculations quite considerably,” he said.
As for Connecticut, Haughwout said he sees encouraging signs in the state’s hot housing market. It remains to be seen, however, if the newfound interest in Connecticut survives as vaccination rates climb and life returns to some semblance of normalcy, he said.