Welcome to the MainStreet Macro Blog, a weekly dispatch that will dissect and explain the macroeconomic trends that affect the business community, its workers, and the consumers it serves.
Last year was one for the record books. Main Street businesses suffered their most challenging year, while Wall Street enjoyed one of the most remarkable recoveries in U.S. history.
Stock prices rebounded from a 33 percent decline in March to end 2020 at a new record high. The recovery was less generous to Main Street, where social distancing efforts intended to control the spread of COVID-19 forced businesses to shut their doors or operate at reduced capacity.
So while Wall Street already is looking ahead to a post-pandemic future, Main Street is still stuck in the present, where the pandemic is still in the driver’s seat.
The chart below shows how the pandemic’s path affected 2020 employment, where the momentum of job gains rose and fell in sync with viral outbreaks.
That pattern will continue in 2021. All told, the path from recession to recovery will occur in five stages.
As 2020 began, the jobs market was a bright spot in the economy. In February, the U.S. was in the midst of a 10-year economic expansion, the longest in the country’s history. The unemployment rate was at a 50-year low of 3.5 percent. The consensus among economists at the time was that the expansion would continue, with wages picking up steam and consumer spending driving the economy forward.
- Stage 1: Spring Lockdown
Everything changed by March, when COVID-19 began its U.S. spread. We know what happened next. Americans stayed home. We stopped going to restaurants, we cancelled travel plans, we learned how to Zoom, we longed for the days when our kids went to school, and a lot of us learned that our work wasn’t “essential”. But businesses adapted to the lockdown, and many of us worked from home. Millions of others couldn’t. In March and April, 22 million jobs were lost, completely obliterating the economic gains of the last 10 years.
- Stage 2: June Swoon
Social distancing measures worked initially, especially in the Northeast, and the number of cases fell in May and June. At the same time the aggressive monetary and fiscal stimulus (something missing in the 2008 recession) was in full bloom. In a never-before-seen show of federal force, the Federal Reserve and Congress ushered in trillions of dollars of monetary and fiscal stimulus in the form of rock bottom interest, direct payments to households and loans to businesses of all sizes. As job gains peaked in June, ADP research shows that more than 2 million of June’s 4.7 million gains were due to the Payroll Protection Program as part of the Cares Act passed in Congress in March.
- Stage 3: Surging Winter
The pandemic proved to be a persistent foe, however. By fall, cases had emerged in the Midwest and South before returning to the East and West coasts. Municipalities were forced to roll back some reopening mandates. With renewed restrictions, the pace of jobs gains slowed. Last week, the ADP National Employment Report showed that after 7 months of recovery, the economy took a step backward, losing more than 120,000 jobs in December.
- Stage 4: Vaccination
New vaccines are the light at the end of a very long pandemic tunnel. While we collectively cheered the science that led to the breakneck speed of the vaccine’s development, those of us who run businesses know that good product is just half of the equation. Good execution is needed as well, and the distribution challenges of inoculating the percentage of the population required for herd immunity will dominate the economy in the first half of the year. During this stage we expect job gains to remain subdued but helped by the $900 billion bipartisan stimulus passed late last year.
- Stage 5: Immunity
As vaccines become more widely distributed this year, we expect consumers to be more comfortable in engaging in normal economic activities. Finally! (Disney World anyone?) Getting back to normal on Main Street will never feel so good as shops reopen, concert halls welcome crowds, and friends linger in coffee shops and bars.
As much as we’d like to forget 2020 ever happened, the human and economic toll will remain. It might take years for the economy to return to its pre-pandemic growth trajectory. The job market will bear scars, especially among the women, low-income workers and minorities hit hardest by unemployment. Businesses, too, will need time to regain their footing after months of lost revenue.
The Week Ahead
Next week we turn our attention from workers to consumers. Retail numbers for December will be released Friday, giving us a view of consumer spending, which makes up the lion’s share of the economy. Retail sales rebounded quickly to pre-pandemic levels this summer, but weakened in November as virus cases surged. We’ll watch to see if consumer prices remain depressed when the consumer price index (CPI) is released on Wednesday, or if inflation is starting to pick up.
On MainStreet, there are still many open questions that even a vaccine can’t answer. When will we go back to the office? Will cities ever be the same? Can all those lost jobs be recovered or are many gone for good? Can parents really work from home and send their kids out to school? How will businesses adapt to the new demand for remote work and the new focus on employee health? Will the NY Jets finally ever have a winning season?
What’s clear is that a productive and growing economy requires a healthy and thriving Main Street. The resilience of the country’s small and mid-sized businesses will drive the economy forward in 2021 and beyond.