Updated May 28, 2020
For the first time in a century, the nation’s economic recovery depends on how well public health measures can contain the spread of a deadly virus. In a unique turn of events, the health of the U.S. economy is now dependent on the health of its people. The longer stay-at-home mandates are in place against COVID-19, the longer the recovery may take. The longer the U.S. and countries impacting the U.S. supply chain are slowed by the virus, the further out the recovery time horizon will be.
Just how the recovery will happen was the subject of a recent poll of 60 economists by The Wall Street Journal. The majority of the economists (65.6%) expect an economic recovery to begin in Q3 2020, and the second most common response (19.7%) was Q4 2020. Asked what the rebound will look like, 47.1% predicted a V-shaped recovery, while 45.1% expected a U-shaped rebound and 3.9% said an L-shaped recovery was most likely. (Another 3.9% predicted a W-shaped, or double-dip, recession.)
ThinkWhy’s prediction does not perfectly fit any of those scenarios and is more of a hybrid that resembles a Swoosh shape.
What exactly do the two main “alphabet soup” recovery scenarios mean, though? And what exactly is a Swoosh-shaped recovery? ThinkWhy has prepared three economic recovery scenarios, listed from the most optimistic to a more pessimistic outlook.
V-Shape – Speedy Recovery Back to Previous Levels of Employment
A V-shaped rebound is the most optimistic view. This indicates that job loss would be swift, but the subsequent rebound would also be swift. For this scenario to happen, many outside factors would have to play out almost perfectly. Aid packages must be adequate for families and businesses to survive the loss of jobs and business revenue. Once it is safe, people must be energized to get back into the workforce, and the pandemic cannot have altered the economy’s fundamental structure.
Outside of controlling the spread of the coronavirus, fiscal and monetary stimulus are likely the biggest drivers of this type of recovery. In the V-shaped scenario presented below, job loss is forecasted to trough during the third quarter of 2020 with all jobs regained in Q1 of 2022.
U-Shape – A Longer Road Back to Normal
A U-shaped rebound is a less optimistic view. This rebound consists of the same rapid loss as a V-shaped rebound, but the recovery is prolonged. A delay in the rebound may be caused by extended social distancing measures, companies postponing hiring initiatives, workers deferring returning to work or employed persons failing to return to restaurants and bars for social gatherings and thereby slowing consumer spending. This pushes the recovery out longer.
Swoosh-Shape – Strong Initial Rebound Followed by a Slower Recovery
A Swoosh-shaped recovery combines traits of both a V-shaped and U-shaped recovery. In the beginning, the Swoosh-shaped rebound mimics a V-shaped one. This is because the loss of jobs is swift and so is the initial phase of the uptick, with some industries experiencing a quick return to pre-downturn employment levels. After this initial growth, a Swoosh-shaped recovery begins to noticeably slow. This slow rebound resembles a U-shape in terms of recovery length, but it varies in terms of growth during the deceleration and recovery periods.
As more states reopen and consumers adjust to the “new normal,” economists and analysts at ThinkWhy are forecasting this Swoosh-shaped recovery as the most likely scenario. Similar to a V-shaped recovery, this forecast indicates job loss will trough during the third quarter of 2020 and then begins a significant recovery through early 2021. The pace of employment growth will moderate, extending the full recovery all the way to 2026. While this is ThinkWhy’s base case scenario, the recovery could be sped up, moving closer to the V-shaped, if hiring and social gatherings return stronger than currently anticipated. It is also important to note that certain industries will recover all lost jobs faster than the broader economy.
Differences Exist in Metros
Although forward-looking guidance is challenging in a time like this, several scenarios paint the picture of what the next several quarters are apt to look like. Regardless of the recovery outlines discussed on headline news stations, however, it is important to note that all metros will not behave and recover identically. Nuances will exist in each metro. While the national-level data is incredibly important, metro-level data will drive your specific business decisions in the coming year.
ThinkWhy reports on and forecasts for 150 major metros (metropolitan statistical areas) across the United States. Our economists, analysts and data scientists monitor key performance variables and dependencies within the labor market and report on economic impact. Stay current with us. Our software and content reporting provide actionable insights during the economic downturn as well as the recovery phase.