Exactly a year ago, the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) announced that the United States economy officially entered recession in February 2020. The pandemic ended the longest extension (128 months) in US history. dating back to
1854. Calling for a recession in this case was easy as economic activity essentially ceased in March 2020, as workers were sent home and commerce in person ceased.
Thirteen months after announcing the start date of the decline, NBER Bookend is out with the announcement: The COVID recession lasted just two months from February 2020 to April 2020, making it the shortest US recession on record. The announcement does not mean that all was well in May 2020 – “the committee did not conclude that the economy has returned to operations at normal capacity.” NBER underlined that the worst of the recession ended last spring, adding that “economic activity is typically below normal in the early stages of expansion, and it sometimes persists so well into expansion.”
When the NBER called for a recession in June 2020, I wrote that COVID had created a “huge economic hole” in the economy. Since then, the hole has been very shallow, but it is still there. After contracting by 3.5% in 2020, the economy is on track to expand by more than 6% this year, meaning the overall size of the economy is back where it was before the pandemic. The same is not true for the labor market.
The overall unemployment rate is 5.9%, with 9.5 million people out of work. These numbers are a huge improvement from the worst days of the pandemic in April 2020, but COVID has cast a long shadow on the economy and the job market. The Labor Department said employment indicators “are well above their levels before the coronavirus pandemic.” As of June, non-farm payroll employment is up 15.6 million from April 2020, but down 6.8 million or 4.4% from its pre-pandemic level in February 2020.
One of the reasons for the slowdown was that the government acted swiftly. Congress and the Federal Reserve learned the lessons of the Great Recession of 2008-09 and increased financial aid for individuals and businesses, allowing most Americans to stay solvent and safe during the dark days. However, several federal pandemic-relief measures, such as increased unemployment payments, a moratorium on student loans, and national removal moratoriums, are due to expire in the next 90 days. There is hope that the economic progress that has been made will now be self-sustaining and strong enough to get millions of Americans back to work.
Unfortunately, government efforts were not enough to stop small businesses from going down. A Federal Reserve study found that nearly 200,000 more businesses were closed during February 2021 than during the 12 months of March 2020, which is “about one-quarter to one-third more than normal” compared to pre-pandemic times ” Of those, about 130,000 were small businesses, and most (about 100,000) took place in nail salons and barber shops.
Potential business failure hasn’t stopped entrepreneurs from landing their own gigs. Far from the image of people who were couch-surfing and streaming for days on end, many sidelined workers used their time to think about how to start their own business. With additional savings and, in some cases, stimulus checks in hand, Americans have started a record-breaking number of new businesses in the 16 months since COVID reared its ugly head. That kind of optimism may be the brightest spot amid the long shadow of COVID’s financial fallout. Should I help a friend if doing so tells her a lot about me?
Jill Schlesinger, CFP, is a business analyst for CBS News. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at [email protected] Check out his website at www.jillonmoney.com.