Susan Shelly, Contributing Writer//December 15, 2020
Susan Shelly, Contributing Writer//December 15, 2020
COVID-19 continues to take an economic toll as cases and deaths surge across America, causing the outlook for the current quarter and first quarter of 2021 to be downgraded.
However, we should expect improvement in the second quarter, and even better results for the third and fourth quarters of next year, according to Dr. Jay H. Bryson, chief economist for Wells Fargo’s Corporate and Investment Bank.
Bryson, the keynote speaker Tuesday at the Wells Fargo economic forecast breakfast, a virtual event presented by the Greater Reading Chamber Alliance, spoke from his home in Charlotte, North Carolina.
He said the pandemic has had a seismic effect on the U.S. economy, and that recent spikes in cases and deaths have harmed what started as a promising fourth quarter.
“We came into the fourth quarter with strong momentum, but we’re leaving it with weak momentum,” Bryson said. “That sets us up for a weak first quarter for 2021.”
The economy should see some improvement during the second quarter and rebound significantly in the third quarter, remaining strong through the fourth quarter and into 2022, Bryson predicted. However, he warned, the speed of recovery is likely to be uneven across different economic sectors and will vary by region.
While the year will end with total consumer spending 2% below where it was in February, the level of pain felt among various sectors varies dramatically. The sales of durable goods such as cars and household appliances has jumped 15% from February, while non-durables are up 5%.
The sale of homes – especially single-family dwellings – has risen significantly since February, and orders for capital goods were strong coming into the fourth quarter. The biggest problem, of course, occurs within the service industry.
While services usually hold up and sales of durable goods fall during a recession, the pandemic has turned that on its head, explained Bryson.
“The big weakness of the economy, which comes as no surprise, is services,” Bryson said.
Overall, the service sector, which accounts for 70% of the U.S. economy, fell 7% since February, with a disproportionate number of service workers, many of whom work in low-paying jobs, being laid off.
More than 8 million leisure and hospitality workers lost their jobs at the beginning of the pandemic, Bryson said, and while more than half have been re-employed, about 3.5 million are still without work.
“Unfortunately, people who don’t make a lot of money have borne the brunt of this recession,” he said.
High-paid workers have tended to keep their jobs throughout the pandemic, while many working in retail, restaurants, bars, hotels and other service areas did not. While that disproportionately affects lower-paid workers, spending by those still working serves to prop up the overall economy.
“The people with high incomes tend to still have their jobs and will continue spending,” Bryson said. “So, it’s not like the economy will crash and burn.”
The loss of those millions of jobs in the service sector and other areas, however, will take years to overcome.
“This has wiped out 10 years’ worth of job gains,” Bryson said. “It will take time to recover all the jobs that were lost in March and April. This 7% unemployment rate is not going back to 3% for a number of years.”
Inflation. Despite indications from the Federal Reserve that interest rates will remain near zero through 2022 to aid economic recovery, Bryson does not anticipate inflation will be a factor. The rate of inflation will vary from sector to sector, he said, but overall should remain low.
Tariffs. Bryson believes that President-Elect Biden will remove tariffs with European allies, and that the U.S. and Europe will join forces to address trading with China. He expects that U.S. tariffs on China will remain.
Congressional aid to those set lose unemployment benefits. If a relief bill isn’t passed by the end of the year and the situation continues to worsen for millions in January and February, Bryson believes that Congress will ultimately come through in the new year.
Major legislation under the new administration. If Republicans can hold the Senate after the upcoming special elections in Georgia, Bryson does not see any major legislation occurring anytime soon. Unfortunately, he believes that a major, much-talked-about infrastructure legislative package won’t happen until we experience more tragedies like the 1997 bridge collapse in Minneapolis that killed 13 people and injured 145 more.
Business outlook for women. The pandemic has resulted in gender disparity as an increasing number of women have left jobs or stopped looking for work to tend to childcare and other domestic responsibilities. However, Bryson said, as more people continue to work from home, it could create greater work flexibility that could be beneficial to women.
National budget deficit. Although we ended 2020 with a record budget deficit of $3.13 trillion, double the previous record of $1.4 trillion in 2009, Bryson said now, with the economy struggling and high unemployment, is not the time to worry about it. “Let’s get through the next few quarters and then have that conversation,” he said. “With interest rates where they are, I don’t really worry about the debt right now.”
While there are many issues to address, what concerns Bryson most is the increasing polarization of society and ever-growing lack of trust in institutions and each other. Those factors affect us negatively in a variety of ways, he said, including economically.
“From a societal standpoint, the situation is pretty ugly,” he said. “But it could start to have some economic consequences, as well.”
Also, during the virtual event Peter Rye, outgoing chair of the Greater Reading Chamber of Commerce and Industry board of directors, said he is grateful for the opportunity to have served and looks forward to the leadership of Michele Richards, currently vice chair, who will assume the leadership position for 2021. Rye is the president and CEO of Brentwood Industries, Inc. Richards is director of treasury sales at Fulton Bank.