Richmond Fed Barkin on US economic recovery, potential scars

The US economy is recovering from the Covid-19 recession, but some economic “scars” may take time to heal, Richmond Federal Reserve Chairman Thomas Barkin said.

Economic scars refer to the damage left by crises that will reduce growth prospects in the medium to long term.

“I hope we are on the verge of completing this recovery,” Barkin said Monday at Credit Suisse’s Asian investment conference which is being held virtually this year.

“Vaccines are rolling out, case rates and hospitalizations are falling, excess savings and fiscal stimulus are expected to help fund pent-up demand from consumers exhausted by isolation and released by vaccines and warmer weather,” he added.

The US economy contracted 3.5% in 2020 compared to a year ago, the Bureau of Economic Analysis estimated. The Organization for Economic Co-operation and Development or OECD said earlier this month that the U.S. economy is expected to grow 6.5% this year and 4% next year.

The U.S. job market took about a decade to recover from the global financial crisis, but it will likely suffer less long-term damage this time around, said Barkin, a voting member of the Federal Open Market Committee.

Indeed, job losses in the United States over the past year have been concentrated in sectors, such as housekeeping and catering, where workers change jobs regularly and could therefore move more quickly. to similar roles and other industries, he explained.

In addition, an increase in remote working arrangements means that job seekers could find new jobs elsewhere without moving, provided they have the right skills and a reliable internet connection, he said.

“Despite these positives, I’m still concerned that we are seeing scars,” added Barkin.

Barkin said many parents, especially mothers, quit their jobs to care for their children after schools and daycares were closed to prevent the spread of Covid-19.

Although there has been some recovery, the rate of parental labor force participation remains about 6 percentage points below pre-pandemic levels, Barkin said.

“If parents who have left the workforce do not come back, it will have negative long-term implications for the growth potential of the United States,” he said.

School closures and the shift to distance learning will also hit students without access to computers and a reliable internet connection – potentially causing “huge losses” in education and skill levels on the job. long-term US labor market, Barkin said.

Other possible “scars” noted by the Richmond Fed chairman include:

• Small businesses have been hit hard by the pandemic, and a reduction in the number of such businesses could cause the US economy to miss out on the “game-changing productivity gains” they often offer.
• While there is no immediate debt crisis in the United States, a “dramatic increase” in federal debt over the past year could decrease the ability of policymakers to respond to the next crisis.

To alleviate the economic “scars”, policymakers should “complete the process of controlling this virus,” Barkin said.

“The scars, whether in workers, businesses or communities, should be much less in a world that is able to return to normal or something that looks quickly to normal compared to a world in which people are still afraid to get in an elevator, ”he said.

“The priority now is to distribute vaccines and reopen the economy safely. We are making good progress in this area,” he added.