3 Lasting Economic Impacts of the Pandemic: Report

The coronavirus pandemic will have a long-lasting impact on the U.S. economy, according to the latest economic forecast from the chief economists at 27 large, established financial firms compiled by the Securities Industry and Financial Markets Association.

According to SIFMA’s survey of economists conducted between Nov. 15 and Dec. 3, close to 70% of respondents expect employees will never return to their offices at levels that persisted pre-COVID due to a lack of child care or school closures, the choice to work from home, lingering health concerns and fears of contracting COVID.

Slightly less than half (44%) expect consumers will shy away from high-density activities after vaccinations are “distributed en masse” — the phrase isn’t defined, but to date 70% of Americans are fully vaccinated — and 44% expect they won’t.

In the travel arenda, ninety-two percent of respondents expect to see a lasting or permanent negative impact on hotels, and 83% expect the same for airlines, due to changed consumer behaviors.

Eighty-six percent of respondents favor a vaccination requirement for airline travel, return to offices, and at movies, plays and sporting events — all up from levels reported in SIFMA’s midyear survey.

“First and foremost the virus remains the key source of uncertainty, followed by extended inflation and of course supply chain disruptions,” according to the report’s introduction from  Lindsey Piegza, Ph.D., chief economist and managing director at Stifel Financial and chair of SIFMA’s Economic Advisory Roundtable, whose members were surveyed.

Inflation Expectations

Piegza noted that Stifel economists expect inflationary pressures due to supply chain issues will be transitory though wage pressures, which tend to be “stickier,” are not.

“Supply chain disruptions will ease when countries around the world are able to control the virus or feel comfortable with returning to ordinary life despite the virus,” said Piegza. But he lamented, “We are likely to be dealing with the virus for the next couple of years.”

He noted existing “structural inflation pressures, with only a portion of the supply chain disruptions resulting in transitory or temporary price momentum. Inflation is complicating the economic picture, even as savings and higher wages have helped to offset the decline in fiscal support,” said Piegza.

The survey forecast overall CPI at 6.5% for 2021, up from 1.1% in 2020,  and core CPI, which excludes food and energy, at 4.9% versus 1.6% in 2020. By 2022, economists predict those levels will fall, to 2.8% for headline CPI and 3% for core CPI.

These inflation forecasts underpin economists’ outlooks for a tighter monetary policy next year but may also explain why they differ widely on the timing for the first Fed rate hike since December 2018.

Twenty-nine percent of respondents expect the first hike will occur in the second quarter of 2022 and an equal percentage expect it will happen in the third quarter and in the fourth quarter. Roughly 12% expected the first hike wouldn’t occur until 2023.

Labor Force Contraction

Another concern of economists surveyed: the contracting U.S. labor force. Close to half of survey respondents (46%) did not expect the labor force participation rate would ever return to its roughly 63% pre-COVID average, and an equal percentage expected it will but not until after 2022.

Piegza, citing stats from the Bureau of Labor Statistics, noted that as of October 1.5 million Americans reported they’re prevented from looking for work due to the pandemic, and more than 2 million reported being sidelined due to “worries about getting or spreading the virus.”

GDP, Unemployment Rates

As for the outlook for the economy this year and next, the survey showed a median forecast for annual GDP growth Q4 over Q4 up 7.5% for 2021 and 3.1% for 2022 with long-term GDP growth at 2% annually.

The unemployment rate, based on the fourth-quarter average, was forecast to end 2021 at 4.5%, falling to 3.5% a year later.