Thanks to numerous lockdowns to slow the spread of the coronavirus, millions of Americans are out of work and businesses across the country teeter on the verge of collapse. Even when the economy fully reopens, it may take a while to return to normalcy. One investment expert predicted that it could take as long as a decade to return to the strong economy America enjoyed before the coronavirus.
“It’s going to take years, or longer, to get back to where we are — or where we were,” J.P. Morgan Chief Investment Officer Bob Michele predicted. He told Bloomberg News that it will take between 10 and 12 years after the pandemic for unemployment to drop to the lows seen during the early years of President Donald Trump’s administration.
Bloomberg News asked Michele whether reopening would be as simple as “turning on the lights.” He flatly rejected that idea. “No, it’s not that simple.” He compared unemployment rates during the coronavirus crisis to the unemployment during the 2008 financial crisis.
“When you look at the Congressional Budget Office forecast for the end of 2021, they have unemployment at 9 percent, so sure, materially better than where we’re going to peak in the high teens, but during the peak of the financial crisis, unemployment hit 10 percent,” the J.P. Morgan investor said. “So even looking out a year and a half from now, we’re still going to be roughly where we were at the peak of the financial crisis.”
Even when the economy reopens, Americans will not end up spending the same way they did before the virus, he predicted.
“One of the things we did was to just predict a downdraft in the second quarter, somewhere around 10 percent, so call it 38 to 40 percent annualized, and say that’s the trough, and then start this journey back up to the longterm trend rate,” the investor said. “To catch up to the long-term trend rate that’s been in place, call it 1.5 percent, pre-crisis, to fill that output gap, we estimate it will take ten to twelve years.”
It took the U.S. economy 8.5 years to reach the long-term trend line after the financial crisis, but the coronavirus crisis has already hit unemployment harder than the 2008 crisis did.
Tyler O’Neil is the author of Making Hate Pay: The Corruption of the Southern Poverty Law Center. Follow him on Twitter at @Tyler2ONeil.
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