Covid’s ‘new normal’ is here to stay

 

Gordon L. Weil

Covid has affected everyone, whether or not you were vaccinated.

Not that Robert Kennedy, Jr. is right about shots.  Despite his claims, vaccinations can protect your health.  But they can’t shield you from the changes Covid has brought to the American economy.

The post-Covid world is often labeled negatively as the “new normal.”  Despite broad economic recovery, many people are unhappy and hope for conditions that are long gone. 

“Make America Rich Again” could be their slogan.  Polls suggest that people ignore the economic recovery and blame Joe Biden for not giving them the kind of personal prosperity that had supposedly boosted their purchasing power and assured their retirement.  

There probably never was an “old normal.”  Whatever the state of the economy in 2000, it was hit by the double whammy of the Great Recession of 2008 and the Covid pandemic in 2020.  Covid got us, and no president could provide a quick fix.

The Great Recession brought a massive slowdown and kept inflation low between 2009 and 2020.  People may have grown accustomed to low inflation, but it zoomed when Covid caused shortages and the government pumped recovery dollars into the economy.  To reverse inflation, the Federal Reserve has boosted interest rates.

The Fed’s anti-inflation efforts are working, but the higher interest rates have made some major costs, like buying a new home, much higher than they were.  The collapse of aggressive lending brought on the Great Recession and then the resulting slowdown kept housing costs well below traditional levels.  It will not again be as easy to buy a house.      

Covid changed almost everything.  Employment, retirement, remote work, and what we purchase and when we buy it were all affected.  Prices will not recede to the unusually low levels of a few years ago.  There’s no political magic that can change that.  The “new normal” is here to stay.

The good news is that unemployment caused by Covid has come down.  The bad news is that we are left with a shortage of workers.  Businesses cannot fill slots and low joblessness affects the economy in areas ranging from home building to restaurants. Wages are higher, but are not attracting the new workers that are needed. 

Why isn’t the labor supply better?  One major reason is that some people who might normally have been at work have decided to stay out of the labor force.  There’s been an increase in people who remain at home as caregivers and in people taking early retirement.

Some older workers lost their jobs during the pandemic and choose not to return to work or have not found jobs at their former pay level or requiring their skills.   More people accept reduced Social Security payments at age 62 rather than struggle to find suitable full-time work.  

Covid made remote work more common.  The pandemic’s spread required more people to evacuate the workspace. Though many have been required to return, the percentage of workers in remote locations has remained relatively high.  Downtown buildings have empty offices, permanently abandoned as the popularity of remote work has gained.

The limited labor force has meant that home builders are scarce.  Housing demand has grown faster than the available labor.  Less new housing has reduced sales and driven up home prices.  The construction labor shortage may partly be the result of the uncertain availability of workers thanks to a nonexistent immigration policy.

People have become more uncertain about their ability to finance their retirement. Added to worries about the future of Social Security, essential to many retirees, are concerns about their vulnerability when technology transforms the demand for skilled workers.  Their doubts can affect their spending and their purchasing decisions then flow back to promote more change.

People now hold on to their cars for 12 years.  Previously, frequent trading up to a new model was an American tradition. A pool of traded-in cars was created, and now they are in high demand.  Auto dealers continue to see service and parts grow, far surpassing their profits from sales of new and used cars. 

People worry about high inflation.  Some believe personal savings have increased, cutting into consumer buying.  Most think we’re in a recession. These beliefs are wrong.

The Fed is bringing inflation down.  Personal savings are not unusually high and, while personal consumption faltered, it is once again soaring.  The American economy grows steadily, ahead of most other countries.

Biden gets little credit for the good economic news and blame for the bad, whether real or imaginary.  Donald Trump left office before having to face most of the pandemic’s economic effects.

Biden does not deserve the blame nor does Trump deserve credit for the economy.  More powerful than any presidential policy, Covid’s unavoidable impact has left us all worried about our economic future.