As pandemic wanes, local economist examines long-term ramifications

Posted 3/31/21

CHAPEL HILL — With state-imposed restrictions lifting, vaccine distribution hastening and coronavirus deaths lessening, local economies seem poised for speedy recovery.

Expert forecasts depict …

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As pandemic wanes, local economist examines long-term ramifications

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CHAPEL HILL — With state-imposed restrictions lifting, vaccine distribution hastening and coronavirus deaths lessening, local economies seem poised for speedy recovery.

Expert forecasts depict new growth and expansion, especially in budding areas like N.C.’s Triangle. But colossal federal spending — while instrumental in reviving the shackled economy — may have compromised some future prospects.

“But I am optimistic,” said economist Dr. Mike Walden, keynote speaker at the Chapel Hill Chamber of Commerce 2021 Critical Issues Series: Economic Forum last Thursday.

“I do think that we’re coming back,” he said.

Walden is a William Neal Reynolds distinguished professor and extension economist at North Carolina State University where he has worked for more than four decades. He is also a frequent contributor to the News + Record.

“By the third quarter of this year,” Walden said, “I’m predicting that we will fully be back in terms of our aggregate production in the economy in North Carolina.”

Still, a “fully” recovered economy may not represent a complete return to normalcy. Throughout his career, Walden says, he’s lived through and studied many economic recessions. But 2020’s belongs in a category of its own.

“This has not been a recession where every sector has been affected in the same way,” he said. “We’ve probably seen more differences and impacts among sectors in this recession than any recession I’ve watched during my 43 years as a professional economist.”

Across the national economy, unemployment hit record highs last spring. North Carolina tallied its most severe unemployment rate — about 14% — since the U.S. Bureau of Labor Statistics began tracking the figure in 1976. But in most areas — construction, manufacturing, information, finance, education and more — fewer than 10% of jobs were lost, and most have recovered by now.

It’s a different story for the leisure, hospitality and services industries, though, where nearly half of all jobs were slashed in 2020. As restrictions have eased in recent weeks, retail and restaurants have expanded operations. But the industries support only about 70% of the jobs that existed in 2019.

“A big question is whether those sectors will return to their pre-pandemic levels,” Walden said.

And, he fears that “real unemployment” is worse than numbers represent.

“There’s a joke — line up 10 economists, you’ll get 10 different opinions,” Walden said. “But this is an area where most economists are in unison in that we think and we believe that the unemployment numbers right now are understating what I’m going to call ‘true unemployment.’”

It is common belief, Walden says, that unemployment figures are derived from the percentage of a population filing unemployment claims. If that was true, a low unemployment rate would directly correspond to low dependence on state and federal assistance.

“But that is absolutely not the case,” Walden said. To measure unemployment, “the federal government runs a separate survey, which they conduct nationally, and they have data for each state. They survey about 100,000 workers nationwide.”

The survey asks three questions: if recipients have jobs; if they don’t have jobs, but would like to work; and if they don’t have jobs, but have looked for employment in the last month. Respondents may not be working, but if they have no desire to work, or have not recently sought work, the government will exclude them from its unemployment tally.

“These have been the rules forever,” Walden said, but “... the concern right now, since the pandemic has been with us, is there are many people who are without a job — they may have lost their job and they want a job — but they are not out looking for it because they are afraid of getting COVID.”

They might also fear exposing high risk family members to the disease, Walden added, or they may have been home supervising children and were therefore unable to actively pursue new employment.

“What I’m getting at with all this,” Walden said, “is that most economists think what I’m going to term the ‘true unemployment rate’ ... would probably add about one and a half or two percentage points” to the federal unemployment rate. “So we have improved, but we’re not quite as good as these numbers would indicate.”

The unemployment rate is not the only misleading economic indicator, though. Much of the economy’s quick bounce-back is attributable to federal bailout programs such as 2020’s CARES Act and this year’s American Rescue Plan which artificially infused the economy with trillions of borrowed dollars. The spending has prevented immediate catastrophe, but will reap future consequences — though not the ones some suspect, Walden says.

“A lot of people contact me and say, ‘Walden, didn’t we borrow this from the Chinese? Aren’t they going to want it back sooner rather than later?’ Or they say, ‘How can we pay this, adding all this to the (national) debt?’ Well, those are not the two problems.”

It’s not true that most of the trillions in borrowed funds used to shore up the U.S. economy came from foreign governments such as China. About two-thirds of it was borrowed from the Federal Reserve.

To supply such gargantuan sums, however, the Fed created new money — and that is problematic.

“Historically, when a central bank prints money at rapid rates, you have a rise in inflation in the future,” Walden said.

He was quick to qualify his warning, however.

“I’m not talking about hyperinflation,” he said, “but I do think that should be something on your radar screen. And if you’re a businessperson, plan for your costs going up a little faster.”

A succession of other concerns might follow from the government’s recent spending patterns.

“I think — and many economists think — the big cost to this is we have borrowed money from the future and used it now, which means that money is not going to be available in the future for spending and investment.”

By some estimates, Walden said, the country’s future economy will grow about 10% slower than it would have had the pandemic not imposed such tremendous setbacks.

“So we had a trade-off here,” he said. “The question was, do we borrow from the future? Do we have somewhat slower growth in the future in order to save a big part of the economy today? In (my) personal view, that was the trade-off I would recommend making.”

Reporter D. Lars Dolder can be reached at and on Twitter @dldolder.


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