UCLA Forecast Finds it Will Take the Economy At Least 3 Years to Recover from COVID-19
Tami Abdollah is dot.LA's senior technology reporter. She was previously a national security and cybersecurity reporter for The Associated Press in Washington, D.C. She's been a reporter for the AP in Los Angeles, the Los Angeles Times and for L.A.'s NPR affiliate KPCC. Abdollah spent nearly a year in Iraq as a U.S. government contractor. A native Angeleno, she's traveled the world on $5 a day, taught trad climbing safety classes and is an avid mountaineer. Follow her on Twitter.
The U.S. economy is in a "depression-like crisis" and it will take at least three years before its GDP and unemployment rate return to the levels it saw before COVID-19 pandemic struck, University of California, Los Angeles economists reported Wednesday.
Their 126-page UCLA Anderson Forecast for June 2020 anticipated a 42% annual rate of decline in real GDP for the current quarter with a "moderate recovery" that resembles a "Nike swoosh." The GDP won't return to 2019 levels until early 2023, it said. The unemployment rate, which rose from 3.5% in February to 14.7% in April, is expected to hover around 10% in this year's fourth quarter and remain above 6% into the fourth quarter of 2022.
The forecast assumes there will be no additional nationwide shutdowns due to the novel virus; that U.S. public schools will reopen in the fall, enabling parents to fully work and that vaccines will become available in early 2021. Should any of those factors change, for better or worse, then the forecast would also likely change.
UCLA Anderson forecast's the national GDP won't return to pre-pandemic levels until 2023 at earliest.
Recovery will be "sluggish because too many things in the economy have broken," said David Shulman, senior economist for the forecast, in an interview with dot.LA. "The drop we've had in economic activity is unprecedented and it wasn't caused by the macro economy. It's more like a natural disaster, but it's a natural disaster hitting the whole country at once."
The report notes that though 22 million nonfarm jobs were lost between March and May, the Federal Reserve Board's speedy fiscal policy moves and the $1.8 trillion CARES Act passed by Congress may help offset long-term economic decline.
Still, "despite the Paycheck Protection Program, too many small businesses will fail and millions of jobs in restaurants and personal service firms will disappear in the short-run," the forecast said, adding that it took more than two years for air travel to return to its prior peak after 9/11.
State and local budgets have also suffered a "revenue collapse," the report states, that may take years to recover from, even with federal assistance. Businesses have taken on a huge amount of debt during the pandemic, so it's likely that new capital spending will take a backseat to paying off loans.
Air travel has also been "totally disrupted" by the pandemic. Air travel "collapsed," with the number of daily passengers falling from roughly 2 to 2.5 million in 2019 to 100,000 in April, the report states. As of June 11, the report finds that the number of passengers was at about 500,000 people daily, still 80% shy of normal. That impact to air travel also impacts tourism and hotel stays.
California's restaurant business is still 65% 70% below what it was during the same week in 2019.
A comparison of Open Table reservation data found that the restaurant business has bounced back faster than air travel, but is still 65% below what it was during the same week in 2019; in California that figure is 70% below law year's level.
The economists also reviewed Google's released mobility data to understand the broad impact to the economy. Per its data, mobility reduced by as much as 87% in Kuwait and 35% in Italy, whereas in the U.S., mobility declined on average by 24%. In California that drop in mobility was 41%, which also correlated with a deeper decline in employment.
Interestingly enough, the Bay Area had a larger decline in mobility, which may be tied to tech companies allowing employees to work remotely through the year's end and enabling them to leave the high-cost area.
The mobility data overall indicates that "the Global Recession is a sure thing and that the U.S. and China cannot expect many buyers for their experts around the world in the near future (when) no continent could escape the pandemic."
A review of the U.S. Census survey of the small business community found that Los Angeles small businesses have seen a slower recovery of revenue compared to the U.S. and California overall. Between February and April, California lost 2.56 million nonfarm payroll jobs, a 15% drop that's nearly double the job loss during the Great Recession in 2008 and 2009. The brunt of those losses were in leisure, hospitality and retail.
"While the mandated closure of restaurants, event spaces and touristic sites were the catalyst, the expiration of the closure ordinances will not act as a switch to bring all of those unemployed back," the report states. Customers and tourists need to "feel safe" before they will venture out again.
The pandemic appears to have accelerated earlier trends toward increased digitization of the economy, with brick and mortar stores facing a likely even worse fate than had been feared pre-pandemic. Amid a "new cold war" with China, the U.S. will likely favor resilience over efficiency and bring its factories and supply chains back to the United States in the South and Midwest, and most of it will be automated, the forecast said.
The report found that the novel coronavirus' effects and tenant protection laws are "becoming interconnected as cities and states pass moratoria on evictions for non-payment of rent." If landlords become wary of these, they may decide to exit the rental market altogether, limiting the overall stock of rental properties.
UCLA Anderson's projects for California show the state more deeply affected by the pandemic shutdown than the country as a whole.
In the meantime, recent technological advances, including easy video conferencing and prevalence of internet connections, have demonstrated that working from home is possible for many people. As a result, workers at some companies like Twitter will be allowed to work from home permanently, which will lead to a shift in economic and housing activity from large urban areas to mid-sized cities and the suburbs, which are often cheaper and easier for social distancing.
Companies are already reevaluating what their office spaces should look like and if they should ever return. With less commuting times, carbon emissions are expected to drop.
"Simply put, dense pedestrian-oriented environments and mass transit (both horizontal and vertical as in elevators) do not work in a socially distancing environment," the report states.
Even with a vaccine, "the shock of the shutdown and the fear that the virus or another virus may return has been seared into the consciousness of the citizenry."
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