WILMINGTON – Things are bleak right now nearly seven months into the worst worldwide pandemic in generations, but there is reason to be optimistic of a substantial recovery, according to a leading economist.
“I really think that the crisis that we’re in the middle of will pass relatively quickly, and we’ll be back to trying to figure out how to position ourselves for where we’re going to be heading in the next decade or so,” said Jim Glassman, head economist for commercial banking at JPMorgan Chase and Co., in an Oct. 1 webinar hosted with the Delaware Business Times. “I think there’s a very good chance of getting back almost fully where we were by the end of next year.”
Glassman, who prior to his decades-long career at JPMorgan served as a senior economist at the Federal Reserve Board in Washington, D.C., said that the public should view the economic crisis that has unfolded in the COVID-19 pandemic’s wake not as a business cycle downside, but rather like a natural disaster.
“It’s like we had a massive snowstorm that shuttered everybody in and we said to them, ‘We’ll give you pay for your lost wages, just let us clear the roads,’” Glassman said. “Once we got the roads cleared, you can go back to life and things will spring back more quickly.”
With the pre-pandemic economy booming, only 3.5% of the workforce out of a job and no inflation in sight, Glassman said that the goal is to get back to those 2019 levels. He forecasted unemployment to continue to fall to about 7% by the end of 2020, and as low as 4% by the end of 2021. He noted that those expectations are closely tied to the expectation that a successful vaccine will be developed and distributed by next year though.
Because the public has not had to so closely track an economy like it is now, Glassman cautioned anyone focusing too much on short-term data, such as weekly unemployment claims, and recommended instead to take as much of a long-term view as possible.
“If you just look at [weekly unemployment claims], you will say, ‘Oh my gosh, there’s still just an awful lot of trouble.’ But if you look at the number of people who are receiving unemployment continuously, it’s coming down steadily,” he noted.
While many in the public may have questioned why the country’s gross domestic product (GDP) fell nearly 32% in the second quarter after Congress authorized $4 trillion in stimulus funding, Glassman said that didn’t surprise him. The funding alone wouldn’t stimulate the economy until it showed up as consumer spending.
“That did not mean that the money that was being authorized to be spent was not doing any good,” he said. “If you add up all the lost wages that were that resulted from quarantining businesses and asking people to stay at home, it adds up to about $800 billion … keep that number in mind when you think about what Congress did when they authorized the release of $4 trillion.”
Glassman noted that while those who are financially stable enough to spend the stimulus funds on goods, there are still many restrictions on that ability. Many businesses continue to be closed while travel and vacationing were largely discouraged through the summer.
Consumer spending has risen to nearly pre-COVID levels, however, while home and vehicle purchases are also booming due to lower interest rates and incentives. While the nation’s GDP dropped to about 85% of expected levels in April, it has sprung back over the summer.
“It looks to me like the national GDP is about 97% to 98% of where we would have been had we not had this crisis,” Glassman said. “It may not feel like the national economy is 97% or 98% of where we would have been because employment has not fully recovered as much.”
To solve the latter problem is “more about psychology than it is about economics,” he said, explaining that consumer confidence regarding safety aided by a medical solution was needed.
International travel to the United States has fallen from an annualized average of 80 million to just 3.5 million this year, despite airlines’ efforts to sanitize planes and socially distance customers, Glassman noted. Those travelers have removed billions in consumer spending from the economy.
“I really think that if the airline system can figure out how to cut through the fear, that’s probably the fastest way to get that part of the economy moving again,” he said. “Until we get that to happen though, it’s hard to believe that we can make much further progress than we already have on the economy.”
By Jacob Owens
