Don’t count on a V-shaped recovery, as many initially predicted. Instead, buckle up — we’re in for a much slower and K-shaped recovery.
That’s Moody Analytics’s Chief Economist Dr. Mark Zandi’s take. He recently addressed finance execs at a general session at Financial Executives International’s Corporate Financial Reporting Insights 2020 Virtual Conference.
Recouping remaining jobs a ‘slog’
This recession was the shortest in history, Dr. Zandi reminded – just two months compared to the average nine. But it was extremely severe.
And while we got a healthy bounce in May through August, gaining half the jobs lost back, don’t expect much progress beyond that anytime soon.
Of the 11 million Americans still jobless, only half of them expect to be called back to those jobs. And that will make recovery a “slog” in Zandi’s words. Realistically it will take until the end of 2023 to get all jobs back.
6 risks to change the recovery’s progress
Before anyone in your organization gets too attached to this recovery timetable, offer this reality check: Many risk factors remain that could change the trajectory. Zandi identified six of them, from most to least immediate:
- Election fallout. Depending on how deep and prolonged the election challenges go, things could go off the rails. Though at this point investors don’t appear too worried about this.
- The pandemic itself. This has the power to lengthen recovery, if cases continue to skyrocket and we face new shutdowns. It could also have the opposite effect, if the new vaccine becomes readily available quickly.
- Monetary policy. Zandi praised the Fed for its approach during the crisis. Its actions have done a great job of insulating the financial system. Only issue? If things get dramatically worse, the Fed has pretty much exhausted its options to help.
- Fiscal policy. The U.S. has done more to help its citizens through this in terms of stimulus than any other government with the exception of Australia. But we need another round. Zandi outlined a series of scenarios based on how much money – if any – Americans get in a second round of stimulus: a $1.5 trillion package would keep us on track with the current timetable of late 2023; a $3.5 trillion one would cut that by a year and a half, and no additional stimulus would land us in a double-dip recession.
- How much President-Elect Biden can get done. We still don’t know who will control the Senate yet. If we’re looking at a Democratic president and a Republican-controlled Senate, Biden may struggle to make real change on everything from governance to taxes to trade.
- Running out of fiscal space. We had no choice but to use deficit finance, notes Zandi. But we will have to deal with that when we come out on the other side.