Consumer confidence in covid-19 management measures will be a key factor for the U.S. economy in 2021, said John Anderson, economist for the University of Arkansas System Division of Agriculture.
In addition to being a Division of Agriculture agricultural economist, Anderson is head of the Agricultural Economics and Agribusiness Department for the Dale Bumpers College of Agricultural Food and Life Sciences. Anderson has been providing analysis of the impacts of the covid-19 pandemic on the U.S. economy since April.
"The covid-19 pandemic produced an unprecedented shock to the economy," Anderson said. "Second quarter GDP fell by 31.4 percent reflecting the effects of widespread economic shutdowns that generally ran from late March through about mid-May in many parts of the country.
"Third quarter GDP rebounded sharply as economic activity recovered in the summer and early fall, rising by 33.1 percent, compared to the second quarter," he said. "Note that this did not constitute a full recovery, as the increase was from a much smaller base due to the big second quarter drop."
Employment dropped sharply due to covid, with more than 22 million jobs lost in March and April.
"The economy has steadily added jobs since May – up 12 million jobs, cumulatively, from May through November – but the unemployment rate is still almost double its pre-pandemic level of 3.5 percent in February versus 6.7 percent in November," Anderson said. "Labor force participation also remains about 2 percentage points lower than it was prior to the pandemic."
Despite the dramatic slowdown in economic activity, personal income was supported by direct government transfers to both individuals and businesses through a variety of programs. The most significant of these included Economic Impact Payments to individuals and households, enhanced unemployment compensation, Lost Wages Supplemental payments through the Federal Emergency Management Agency, Paycheck Protection Program loans through the Small Business Administration, and Coronavirus Food Assistance Program payments to farmers through the U.S. Department of Agriculture.
As of November, spending largely remained below pre-pandemic levels, "as consumers have been unable or unwilling to return to pre-pandemic patterns even as enforced shutdowns ended," Anderson said. "Consumer activity in the food service sector, travel/hospitality, and recreation is far below pre-pandemic levels and likely will remain so well into 2021."
Anderson said the fall covid surge is affecting the economy, but the effects are not as severe as it was between March and May.
"In all parts of the country, flagging consumer sentiment and voluntary changes in consumer behavior in response to the prevalence of the disease are having a negative impact," he said. "Many service-related sectors of the economy will not recover until consumer confidence returns to something approximating pre-pandemic levels, thus supporting pre-pandemic levels of activity. Such recovery will almost certainly depend on the widespread availability and demonstrated safety and efficacy of a covid-19 vaccine."
Anderson said that "as long as consumers remain fearful of covid-19, economic activity – in terms of both production and consumption – will be negatively impacted.
"The outlook for 2021 thus depends on the success of measures aimed at bringing covid-19 under control: most specifically, vaccination programs," he said. "If such programs advance quickly and are widely perceived as safe and effective, economic recovery could follow quickly. If, as is more likely given the scope and complexity of the problem, such programs advance more methodically and with more ambiguous results, economic progress in 2021 will be modest at best."
Find other covid-related economic analyses at https://bit.ly/AR-Ag-Eco-Impacts2020. To learn about extension and research programs in Arkansas, visit https://division.uaex.edu/
Follow the agency on Twitter at @AgInArk, @uaex_edu or @ArkAgResearch.
Mary Hightower is chief communications officer at the University of Arkansas System Division of Agriculture.