“This is not a regular business cycle, this is the result of a natural disaster.”
Jim Glassman, chief economist at JPMorgan Chase, delivered an optimistic view of the long-term impact of the COVID-19 pandemic on the Massachusetts and national economies, citing the fact that this economic downturn has been particularly unique in its artificiality.
Karen Pelletier, executive vice president of the Chamber, began Tuesday’s Financial Services Roundtable by discussing how the Worcester Regional Chamber of Commerce has opened all of its services and programming to non-members in the interest of inclusivity and support for all businesses during this challenging time. Pelletier also noted that the Chamber added new programming, including a webinar series, specifically addressing the ramifications of the pandemic to area businesses.
The Financial Services Roundtable, sponsored by Bowditch & Dewey, with support from Gallagher Insurance, welcomed nearly 70 participants from a variety of industries for a macro view of the economy via a Zoom call.
Glassman started off the conversation by noting that the current economic downturn is different from other recessions because of its artificial nature. He said that the economic losses of recent months has been more like a response to a natural disaster rather than to a prolonged recession. Unemployment numbers, which are usually a common metric for a bad business cycle, are “not telling the whole story,” says Glassman.
“The way we responded to this crisis – targeted response to those most vulnerable – means that the unemployment numbers that dominate the news are only half the story,” Glassman remarked. He elaborated, saying that unemployment numbers are inflated because of unemployment benefits are high and therefore, people have been incentivized to not return to work. Additionally, the federal government’s quick response, the Paycheck Protection Program (PPP) in particular, has resulted in $4 trillion in total benefits that make their way either directly to consumers or to business owners. This tremendous amount of stimulus money from the federal government, Glassman says, may be the reason that labor income is down while total household income is rising.
Glassman noted that household savings rates skyrocketed from 8 percent in April to 33 percent in May, primarily due to the federal government’s stimulus programs. “That didn’t happen because people are stuffing money under the mattress,” Glassman said of the rising savings rate, which indicates a more prolific economy than people may think, “it happened because we are sending money to households and people are being compensated with benefits,” like increased unemployment benefits and federal stimulus checks. And, with retail, restaurants, and entertainment venues closed, families are spending less money.
He also noted that there are already indicators of an economy coming back as consumer confidence stabilizes, recently resulting in an increase in national retail sales. “For the next several months and into the fall, provided we don’t have a scary new flare-up of the virus, the consumer will drive the trends,” Glassman noted.
While the outlook is hopeful for Glassman, he also understands that there are economic challenges ahead, especially for small businesses such as restaurants and bars. “The small business community bore the brunt of this disaster – restaurants, bars, concert venues, gyms, and more,” he said. “The biggest challenge until we get a vaccine is how is anyone going to make a go of it if you’re a restaurant or a bar or a gym and you can only have half the customers you normally have?” Glassman said that until there is a vaccine underway, the cost of going to a restaurant or bar or other places is likely going to rise as small businesses try to cover for the loss in customer capacity – but that it is still essential that consumers support these businesses as much as we can. But, you cannot charge double to make up the difference.
Glassman pointed out that coming out of a traditional recession could take up to a decade, like the prolonged rise out of the 2008 Great Recession. However, Glassman is hopeful that, because businesses were shuttered to protect the healthcare system from being overburdened instead of because of a fall in aggregate consumer demand, the recession resulting from the pandemic should not last more than a year or two.
In his conclusion, Glassman reiterated that he is “hopeful, and that we’ve got a good shot” at a quick economic recovery in Massachusetts and in the country.
During the question and answer period, he fielded audience queries about inflation, the health of the stock market, when people would feel safe to return to work, and additional stimulus projects the government might explore. Regarding inflation and the stock market, Glassman reiterated that economists are widely unconcerned with both because of the unlikely chance that another pandemic would cause similar issues.
As far as when people would feel safe returning to work, Glassman said that it all depends on when the vaccine is released, because “if we have a vaccine this year, not much will change – a vaccine will encourage people to put this all behind us, and we’ll be telling ourselves, ‘that was unique, that won’t happen again,’ even if it happens again.”
In terms of the government creating new programs to get people back to work, Glassman said that infrastructure development, particularly in the Northeast, was the key. “The first answer to how you deal with a deficit is how you get energy back into the economy, and the top of the list is infrastructure development in the congested Washington to Boston corridor,” Glassman commented, while referring to the Eisenhower era’s usage of highway projects to quickly recover debt incurred by World War II.
Overall, Glassman told the group that he believed this would be a speedy economic recovery, and that the US has learned much from this experience. “I think this crisis has taught us a lot. Crises expose weaknesses in our system. There is a lot to be optimistic about, especially in a private healthcare system which has been able to manage a random and devastating pandemic. We’re on the way to a better place.”
By David Sullivan, Economic Development Fellow, Worcester Regional Chamber of Commerce