Despite the Slow Economic Recovery, There Are Reasons To Be Optimistic.

    The most baffling question that the US faces is how the nation’s economy will recover from the blow of the coronavirus pandemic. There is optimism in many circles that the Delta variant poses no substantial risk to the country’s economic recovery, yet there is no definite answer known to anyone. Expert economists like Jonathan Wright of John Hopkins are trying to figure out how the recovery is likely to happen, and this article should provide some insights into his views. Before talking about recovery, it is necessary to revisit the economic events of the past 18 months to foresee how things will unfold in the future.

    The Challenges of Economic Recovery over the Past Year

    During the second quarter, the gross domestic product or GDP, which measures the output level, is back to the 2019 level yet not what we expected it to be. However, output growth is only a matter of time. For 18 months, there has been no net growth which is worrying indeed, but a bigger worry is the level of employment, which is down by 7 million people. The most concerning aspect is that people are not working, but they are not even looking for a job. The fear of the disease keeps people away from work, and the unemployment benefits discourage people from going back to work. The unemployment of people in the prime age group of 25 years to 54 years is a cause of big worry. Hence, the reopening of the economy has been slow and challenging despite the stimulus. Although the recovery was fast in the initial stage, the momentum was lost subsequently.

    The Role of the Economic Institutions to Jumpstart the Recovery Process

    All eyes are on the Federal Reserve as the nation is looking up to it to accelerate the economic recovery. The Federal Reserve did everything possible regarding the monetary policy, especially setting the interest rate to zero. They have brought back mortgage-backed securities and Treasury securities to lower long-term interest rates

    The thrust in fiscal policy in enhanced unemployment benefits and emergencies has been of great help, and it helped people to maintain their spending, which they otherwise could not have done. The safety ring of unemployment insurance coupled with increased spending has bolstered the economy considerably. 

    The fiscal policy has done enough to get the economy back on track, but avoiding doing too much is essential or triggering persistent inflation. The point is crucial because no one knows when the pandemic will be over by 2022, if at all. Now that the Omicron poses new threats, a relook at the fiscal policy acquires much importance.

    Uneven Recovery

    There is no doubt that some sectors like IT have bounced back impressively and even boomed compared to 2019. One very positive aspect of the pandemic is that it has accelerated numerous changes, growth, and productivity in 18 months that would have otherwise taken many years to happen. Now that we might have to wait longer to see the end of the pandemic, the accelerated changes seem to be most rewarding for the economic turnaround. On the other end, some sectors like travel and hospitality are still a long way from recovery. It has been an uneven recovery and a reason for people’s difficulty in switching over from old jobs to new jobs. On the other side, productivity has gone up because the economy is producing the same amount as in 2019 but with fewer workers, which is bright. Even when people return to work, some of that high productivity will remain, strengthening the economy further. 

    Key Indicators of Economic Health

    The gross domestic product or GDP is the most prominent indicator of economic health, and that it is now in the best shape though not ideal, sends strong signals about an economic resurgence. The labor force participation, especially by the 25-54 age groups, is another indicator of financial health. On this account, there are some genuine worries because the unemployment rate is yet much below full employment. 

    However, with breakthrough infections and the growing threat of Omicron, the new variant will retard the pace of recovery.

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