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We are in the middle of a historic rupture in the economic fabric of our society. The COVID-19 pandemic has already had a pervasive impact on the United States, and economic and financial market experts are hotly debating how quickly the economy will recover once we get “on the other side” of the contagion and the enormous pressures it has placed on our health care system. Although it is too early to estimate the exact economic impact, it is likely that full recovery of economic activity, including GDP growth, jobs, and unemployment, will take at least a year, and likely much longer.
One group of economic commentators, including the president, argue that once we get to the point of health care stabilization, the economy will take off very rapidly, and we will be able to quickly recover the lost economic activity and growth rates.
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But individuals and organizations must keep in mind that this view, as optimistic as it seems in the short term, is a potentially dangerous one when it comes to long-term planning, for four reasons. The first is that it overlooks the negative impacts on consumer sentiment and spending, which are likely to persist for many months, if not years. Second, the recent trend of governments trying to tilt the scales of the gig economy more toward worker rights is likely to continue in the coming months and years. Third, large segments of the economy are likely to be permanently disrupted as a result of the coronavirus’s impact on the travel, retail, and entertainment industries, among many others, requiring capital and labor to shift into new areas of economic activity on a massive scale. Finally, the industries that survive the downturn, including those that are vital to our economic system, will face a long period of adjustment to working and interacting virtually rather than face to face. In addition, industries and companies will have to prepare for future pandemics by building redundancies into their operations and supply chains — initiatives that will take years to develop and optimize.
Consumer Sentiment: Spending and Savings
It has been less than four months since the COVID-19 pandemic started in China, and only weeks since the virus began spreading rapidly in other countries across the globe.