Pedestrians walk outside the New York Stock Exchange in the USA
Daniel Acker | Bloomberg | Getty Images
The U.S. economy is recovering from the Covid-19 recession, but some economic “scars” could take a long time to heal, said Thomas Barkin, president of the Federal Reserve.
Economic damage refers to damage left behind by crises that will suppress the growth prospects in the medium or long term.
“I hope we are about to complete this recovery,” Barkin said Monday at the Credit Suisse Asian Investment Conference being held virtually this year.
“Vaccines are expanding, the number of cases and hospitalizations is declining, excessive savings and fiscal stimulus should help fund the pent-up demand of consumers who are exhausted by isolation and released by vaccines and warmer weather.
The US economy shrank by 3.5% in 2020 compared to a year ago, estimates the Bureau of Economic Analysis. The Organization for Economic Co-operation and Development (OECD) said earlier this month that the US economy was expected to grow by 6.5% this year and 4% next year.
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 around, said Barkin, who is a voting member of the Federal Open Market Committee.
This is because the past year in the US has concentrated job losses in sectors such as housekeeping and food service, where workers change jobs regularly and can therefore move more quickly to similar roles and other industries, he explained.
In addition, an increase in distance arrangements means that job seekers can get new jobs without moving, provided they have the right skills and a reliable internet connection.
“Despite these positive aspects, I am still concerned that we will see scars,” Barkin added.
According to Barkin, many parents, especially mothers, have left their jobs to care for their children after schools and child care centers closed to prevent the spread of Covid-19.
Although there is a recovery, the labor force participation rate for parents remains about 6 percentage points below pre-pandemic levels, Barkin said.
“If parents who leave the workforce do not return, it will have long-term negative consequences for US growth potential,” he said.
Barkin said the closure of the school and the shift to distance education would hit students without access to computers and reliable Internet connections, which could cause a major loss of education and skills levels in the U.S. labor market in the long run.
Other possible “lesions” noted by the Richmond Fed president include:
- Small businesses have been hit hard by the pandemic, and a decline in the number of such companies could cause the U.S. economy to miss the “changing productivity growth” they regularly deliver.
- Although there is no immediate debt crisis in the US, a “tremendous increase” in federal debt over the past year may reduce the ability of policies to respond to the next crisis.
To mitigate economic “scars,” policymakers must “complete the process of getting this virus under control,” Barkin said.
“Scars, whether in workers or businesses or communities, must be much less in a world that can return to normal or something that looks normal again, compared to one in which people are still afraid to get on an elevator. , “he said.
“The priority now is to distribute the vaccines and reopen the economy safely. We are making good progress on that,” he added.