The pandemic depression is over. The pandemic recession has just begun.
By Neil Irwin
There is a straightforward narrative of the economy in 2020: The world shut down in the spring because of the coronavirus pandemic, causing an economic collapse without modern precedent. A sharp recovery began in May as businesses reopened.
That is accurate as far as it goes. But the snapback effect over the summer has masked something more worrying: We’ve entered a longer, slower grind that puts the economy at risk for the indefinite future.
In the details of government employment data — covering hundreds of industries — can be seen a jobs crisis that penetrates deeply into the economy. Sectors that in theory shouldn’t be much affected by the pandemic at all are showing patterns akin to a severe recession.
Business news headlines are reflecting a drumbeat of layoffs normally seen in recessions. In the last few weeks alone, oil giant Shell said it was cutting 9,000 positions, with Disney eliminating 28,000 and defense giant Raytheon 15,000.
After shedding jobs in the spring, these sectors have brought workers back slowly, or not at all, through the summer. Some have continued cutting positions. Employment at corporate headquarters — “management of companies and enterprises,” in the official terminology — fell by 92,000 in March and April, with another 4,000 jobs lost since.
The 3.9% contraction in these jobs, typically white-collar professional positions, is considerably worse than the 2.4% drop during the 2008 recession.
A similar pattern is evident across dozens of industries, employing tens of millions of workers. These sectors did not endure a prolonged pandemic-induced shutdown or collapse in business. But they have shed jobs over the last half-year at rates consistent with a serious downturn.
The list is varied and includes real estate, automobile dealerships, advertising and heavy construction. It even includes truck transportation, a sector that functions as the economy’s circulatory system, given its crucial role enabling all sorts of commerce.
Overall, even if you exclude the sectors directly affected by the pandemic — air transportation; arts and entertainment; hotels; restaurants; and both private and public education — the number of jobs in America was 4.6% lower in September than in February. That is not far from the 5.3% contraction in total employment that took place during the entire 18 months of what is now known as the Great Recession, and around three times worse than the job losses in the 2001 recession.
Executives in these industries and analysts who study them describe two related phenomena. One is the mechanical effect of shutdowns in large swaths of the economy. But as is often the case in recessions, the pandemic has prompted many companies to accelerate shifts that were already underway.
That implies that even as public health restrictions loosen and as vaccines get closer, the overall economy is not poised for a quick snapback to pre-pandemic levels. Rather, scarring is taking place across a much wider range of sectors than the simple narrative of shutdown versus reopening suggests.
When the economy does get back to full health, many jobs will no longer exist, and American workers will need to find other types of work — and historically, those kinds of readjustments take time.
“We do expect there to be a new steady state, but not until 2023 or 2024,” said Sophia Koropeckyj, an economist at Moody’s Analytics. In a new report, she estimates that 5 million people will find it difficult to get new work after the pandemic because their old jobs have disappeared or changed significantly. “I don’t think the severity of this downturn has been well understood yet given the bounce-back over the summer.”
Concentric Circles of Damage
The list of things they make at Herron Printing & Graphics is, more accurately these days, the list of things they do not make.
Based in Gaithersburg, Maryland, the company produces the branded tchotchkes and trinkets that companies give out at trade shows, which are currently not being held. It prints menus for restaurants that now require customers to pull up menus on their phones; it makes the logo-bearing notepads found on the desks in hotel rooms that are closed indefinitely. Seven months in, business is still down 90% from pre-pandemic levels, said the owner, Randy Herron.
He has cut the staff to three employees from 12 and postponed purchases of equipment indefinitely. He is dipping into his savings to keep the business alive, counting on a day when a vaccine arrives and creates a surge of activity in travel-related industries — and, he hopes, commensurate demand for the goods he supplies.
Herron’s business is more exposed than most printers, because his client list is heavily tilted toward the hotel and restaurant industries, but the employment numbers for his industry tell the story. In September, printing industry jobs were 12.5% below February levels, similar to the 15% employment drop experienced in the 2008-2009 recession.
“People don’t realize that if one industry is hurting, it’s going to hurt several other industries that supply them and leave people without money to spend,” said Herron, who is also president of the National Print Owners Association.
Simply put, when you take a huge segment of the economy out of commission for months on end, the impact can’t be confined to the workers in those industries. The suppliers of hotels and restaurants suffer revenue collapses, and so on in concentric circles outward. Herron, for example, said there was no chance he would be purchasing new printing equipment or software for the foreseeable future.
The damage to businesses’ investment spending is a key way that the economy could remain impaired even when public health concerns ebb.
A More Automated Future
The trucking industry as a whole is still operating well below its February levels, with employment down 5% and trucking tonnage in August down 9% from a year ago. But even individual companies that have fared reasonably well may be disinclined to keep investing in new big rigs, after losses this year and an uncertain future.
At Jetco Delivery, a 400-employee trucking and logistics company in Houston, business has mostly recovered since the spring shutdown, with employment down only slightly, said Jetco’s chief executive, Brian Fielkow. To avoid losing good drivers, the company ran some routes at break-even prices, choosing to sacrifice profitability to avoid the difficulty of rehiring when conditions improve.
But investing in new trucks is a different matter.
“Our focus was to retain the best of the best drivers,” Fielkow said. “But one thing that hasn’t recovered is new truck orders. I think people are being appropriately conservative now with capital. What if the vaccine takes another year? There are too many what-ifs. You can’t gamble.”
When the pandemic hit in the spring, sales of cars and trucks collapsed. Many auto dealers had to close entirely because of public health directives, and those that remained open saw paltry traffic. The good news for the sector is that over the summer, car and truck sales surged.
But despite the recovery, employment at automobile dealerships in September was 7% below pre-pandemic levels.
The reason: The pandemic squeezed years of change into a few months in how cars are sold, making for a less labor-intensive process that requires a smaller sales staff, said Rhett Ricart, the chief executive of Ricart Automotive Group in the Columbus area in Ohio, which includes Ford and other dealerships.
For years, car buyers have been shifting toward doing their research online and coming to the dealership only for a test drive. Prolonged haggling over price has given way to a crisp negotiation through emails, and customers can generally apply for loans or get estimates of the value of a trade-in online.
“The pandemic accelerated everything,” said Ricart, who is also chairman of the National Automobile Dealers Association. “It has been a whole dramatic change in our total ecosystem here, as customers have been more motivated to go online.”
A few years ago, an average sales employee would sell 10 cars or trucks a month; now those numbers are moving to 12 or 13.
Avoiding Another ‘Jobless Recovery’
Ultimately, these shifts are essential if there is to be a dynamic, growing economy. And in every downturn, some sectors are hit harder than others. The Great Recession started with the collapse of a housing bubble, and the 2001 downturn started with the bust of dot-com companies.
But what makes a recession a recession is that the initial economic pain, whatever its source, transmits broadly to affect nearly every industry and drive millions of people not into newer and fast-growing sectors but onto the rolls of the unemployed.
The challenge for economic policymakers is not to prevent these structural adjustments. It is to ensure that, as public health concerns wane, there is strong enough demand for goods and services across the economy that even as some jobs disappear forever, new ones are being created and the pain is short-lived. The last two recessions were followed by “jobless recoveries” in which it took years for that process to play out.
The origins of the recession of 2020 may be different from those of the previous two downturns. But so far, the way it is spreading from company to company, and industry to industry, looks awfully similar.