At the beginning of 2020, nobody could have predicted that the economy would fall into the worst recession since the Great Depression. However, the global coronavirus pandemic did just that when economies around the world closed their shops and citizens were ordered to stay home during the depths of the outbreak. In addition to the immense social and physical hardship that this brought with it, the economic impact was similarly disastrous. While the coronavirus hasn’t completely gone away, the effectiveness of the Pfizer, Johnson & Johnson, and Moderna vaccines has allowed life in the United States to return to a sense of normalcy. Here is how hard COVID-19 has hit the US economy on a variety of factors.
The most visible impact of COVID-19 on the US economy was in the abrupt rise in the unemployment rate. In February 2020, before the pandemic hit the economy, the US unemployment rate was a very low 3.5%. By April 2020 it had risen to 14.8%, the highest rate since data collection began in 1948. The number of people employed outside agriculture fell by an incredible 22.1 million jobs between January 2020 and April 2020 alone. The good news is that after this massive peak in April 2020, the unemployment rate began to decline steadily as the year progressed. For example, from April 2020 to August 2020 the unemployment rate fell by 6.4 percentage points to 8.4% and continued to 5.8% by May 2021. While still high, the steady decline in the rate reflects the slow but steady improvement in the US economy throughout the year.
Continue reading: How do we track unemployment and unemployment?
Before the COVID-19 pandemic hit the US, the Fed was targeting the federal funds rate, or the rate at which banks borrow money overnight, at 1.5% to 1.75%. In response to the outbreak, the Fed lowered this target to between 0% and 0.25% between March 3 and 16, 2020. While the Fed Fund Rate does not directly affect consumers, the ripple effect caused by a fall in the Fed Fund Rate can be hugely beneficial. For starters, lower interest rates are usually passed on to consumers in the form of lower interest rates on credit cards, auto loans, mortgages, and other interest-based products. In 2020, this meant that people with reduced incomes also had less interest-related expenses. On the other hand, lower interest rates meant that savers received lower interest rates on products like savings accounts and treasury bills.
In 2020, at 74 years of age, the US gross domestic product shrank more sharply than it has since World War II. The 3.5% decline in 2020 marked the first time the US economy had contracted since the 2007-09 Great Recession. Consumer spending declined 3.9%, which may not sound like much, but was the worst performance since 1932 at the heart of the Great Depression. With consumer spending accounting for a whopping two-thirds of the US economy, the pain the average American felt spread across the economy.
The fact that the overall economy did not collapse any further during the coronavirus pandemic is due, among other things, to the distribution of numerous economic stimulus packages by the federal government. In 2020 and 2021, Congress approved three rounds of stimulus checks for families. The first round of payments approved $ 1,200 per qualifying adult and $ 500 per child. The second round of payments authorized $ 600 for eligible adults and children. In the third round, these payments were increased to $ 1,400 per qualifying adult or child. Various business aids have also been provided, including two rounds of the Paycheck Protection Program for Forgivable Loans and ongoing COVID-19 loans for economic disaster injuries. Other consumer-oriented programs have also been enacted, such as a top-up and expansion of unemployment benefits and a mortgage forbearance program. Taken together, all of these payments helped keep both consumers and businesses solvent.
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Last updated: July 5, 2021