Pedestrians walk outside the New York Stock Exchange in the US.
Daniel Acker | Bloomberg | Getty images
The US economy is recovering from the Covid-19 recession, but some economic “scars” may take a long time to heal, said Thomas Barkin, president of the Richmond Federal Reserve Bank.
Economic scars refer to damage left by crises that will stifle medium or long-term growth prospects.
“I hope we are on the verge of completing this recovery,” Barkin said Monday at the Credit Suisse Asian Investment Conference, which will be held almost this year.
“Vaccines are being rolled out, cases and hospitalizations are declining, excess savings and fiscal incentives should help finance pent-up demand from consumers depleted by isolation and released from vaccines and warmer weather,” he added.
The U.S. economy shrank 3.5% in 2020 compared to a year ago, the Bureau of Economic Analysis estimates. The Organization for Economic Co-operation and Development (OECD) said earlier this month that the U.S. economy is expected to grow by 6.5% this year and 4% next year.
Covid pandemic ‘scars’
The U.S. labor market has taken about a decade to recover from the global financial crisis, but is likely to suffer less long-term damage this time, said Barkin, a voting member of the Federal Open Market Committee.
That’s because US job losses over the past year have been concentrated in sectors such as household and food service, where workers regularly change jobs and could therefore transfer more quickly to similar positions and other industries, he explained.
In addition, an increase in the number of remote working schemes means that jobseekers can find a new job elsewhere without moving, provided they have the right skills and a reliable Internet connection, he said.
“Despite these positives, I am still concerned that we will see scars,” added Barkin.
Barkin said many parents, especially mothers, left their jobs to care for their children after schools and daycare centers closed to prevent the spread of Covid-19.
While there has been some recovery, the parental employment rate remains about 6 percentage points below its pre-pandemic level, Barkin said.
“Failure to return parents who have left the workforce will have a long-term negative impact on the US growth potential,” he said.
The closure of schools and the shift to distance learning will also affect students who lack access to computers and a reliable Internet connection – and potentially cause “massive losses” of education and skill levels in the US job market in the long run, Barkin said.
Other possible “scars” noted by the president of the Richmond Fed include:
- Small businesses have been hit hard by the pandemic, and a reduction in the number of such businesses could cause the US economy to miss out on the “breakthrough productivity gains” they often deliver.
- While there is no immediate debt crisis in the US, a “massive increase” in federal debt in the past year could diminish policymakers’ ability to respond to the next crisis.
To reduce economic “scars,” policymakers must “complete the process of getting this virus under control,” Barkin said.
“Scars, whether on employees, companies or communities, should be much less in a world capable of quickly returning to normal or something that quickly resembles normal than in a world where people are still scared to get into an elevator, “he said.
“The priority now is to spread the vaccines and safely reopen the economy. We are making good progress on that,” he added.