The US – like most other countries around the world – is in the midst of a national health emergency owing to COVID-19 that has triggered adverse shocks to all dimensions of the economy and created significant challenges as the public has been asked to step back from economic activity. The economic impacts are unlike any past pandemic, with many retailers and other businesses closed nationwide and many states in a lockdown where citizens are directed to stay at home.
“How quickly the country gets a handle on containing the virus will determine the degree of the impact on the economy and how soon businesses can reopen,” said NRF chief economist, Jack Kleinhenz. “We expect a severe contraction, and if the nation doesn’t get the virus under control, the fallout will be worse. Social distancing and self-quarantining are now common in our day-to-day lives, and many of those who have not lost their jobs are working at home. With shelter-in-place or stay-at-home directives, retail foot traffic is nearly non-existent. This is a serious time for retail firms as they try to sustain themselves, but the loss of income for both consumers and businesses is not distributed evenly. Some non-essential retailers will see huge losses and many retail workers will lose their jobs. Yet other essential merchants will benefit from stable revenues and their workers will have secure jobs as they try to keep up with the demand for goods and services.”
According to NRF, the US economy entered the “COVID-19 corridor with sound fundamentals.” According to the Bureau of Economic Analysis, gross domestic product grew at an annualised pace of 2.1% during the fourth quarter of 2019. Sturdy employment gains, low inflation and elevated consumer confidence had provided the engine for growth for the longest economic expansion in history.
“At this juncture, it is probable that we will experience a severe contraction at least in the second quarter, and GDP is about to go into a mandated nosedive. Upcoming government reports on economic data will likely show big, scary numbers and losses to the $22 trillion economy. When and what kind of bounce back and trajectory remains unsettled. Nonetheless, we do not believe today’s situation presages a prolonged economic downturn. Once the pandemic is over, we hope we will find that there is nothing structurally wrong with the economy and that any deficiencies were solved by monetary and fiscal policies,” said Kleinhenz.
“The big question is can we get back to normal and how soon? It is critical to ramp up fiscal policy that aids individuals, states and businesses. Recent actions by the Federal Reserve and Congress — including the loans, tax relief and other provisions of the Coronavirus Aid, Relief and Economic Security Act — will help immensely by providing liquidity and keeping the credit markets flowing to the flywheels of the economy. Nonetheless, the primary priority is to first get the spread of the virus under control and then resume economic activity,” he concluded.