Of course, this was because of the coronavirus. But it means that the recovery from past recessions doesn’t really say much about how the recovery will go now. Everyone is trying to predict when there will be a rebound in service sector industries that normally don’t decline, like health care, child care and education. That’s really more of a question about how quickly we can control the spread of the virus than it is about recession fundamentals.
At the same time, the unusually large demand for physical goods in the United States and other rich countries has exceeded supply, driving up inflation and leading to shortages.
So the most important thing to watch if you want to understand the economy is, as has been the case for a year and half now, the progress made against the virus. Related, and also worth watching, is how much Americans spend on goods relative to services. (It was 31 percent in 2019 and has risen to 35 percent now.)
While economic growth in the United States was disappointing in the third quarter of 2021, it could easily turn around if coronavirus case numbers improve. The U.S. employment numbers released on Friday were encouraging. New Covid-19 cases are down significantly and millions of children are now eligible for vaccination, which could reduce infection rates even further.
Looking beyond the coming months, though, the most interesting questions aren’t really about recession and recovery. They center on whether any of the pandemic changes will last. Some companies, for example, are now trying to hold more inventory and keep their supply chains local to avoid disruption. Many people are working partly from home and some have moved to the exurbs. But how long before they rediscover why we ended up with lean manufacturing and a global supply chain in the first place? And Americans are already moving back to cities.
My view is that reversals of longstanding economic trends are not likely to become permanent. Once the economic memory of the pandemic has faded, the old lessons from the regular business cycle will probably become relevant once more. Until that happens, though, best to get in line for a vaccine booster and keep your eye on the case numbers.
Austan Goolsbee (@Austan_Goolsbee) is a professor of economics at the University of Chicago Booth School of Business and was chairman of the Council of Economic Advisers from 2010 to 2011.
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