Photo credit: Tayeb Mezahdia.

By Ashwin Johri

The COVID-19 pandemic has affected everyone’s lives around the world: restriction of daily activities like school and work and the closure of almost all recreational or non-essential businesses, such as restaurants, movie theaters, and barbershops for months. The pandemic has resulted in almost one million deaths worldwide and economic crises in most countries that failed to handle the pandemic effectively. The United States, which is currently the leader in both infections and deaths due to COVID-19, has specifically suffered, “causing the biggest blow to the US economy since the Great Depression.”

The GDP (gross domestic product) of the United States, considered an accurate measure of the growth of the economy, sharply declined at a rate that was greater than any other seen since 1947. Over 50 million unemployment claims have been filed since the onset of the pandemic – about 25% of the working-age population of the United States. These figures have been unheard of since the Great Depression. And yet, in September, the stock market mostly recovered to its standing before the COVID-19 recession, and maybe even higher – most index funds that tell the status of the market are similar to February levels, before the market dropped. So which aspects of the market were hit the hardest, and how did they rebound so quickly?

I spoke with one of the leaders of Collegiate’s Darr-Davis Investment Advisory Board, Chase Conquest (‘21), regarding these questions. Although all sectors of the economy have been hit hard, he explained that anything that has to do with many people being in a single place, such as restaurants and amusement parks or other recreational activities, have been affected greatly. It is estimated that these sectors in particular will take until 2024 at the very least to recover to their pre-pandemic GDP. Conquest described that the only sectors that benefited from the pandemic were information technology, e-commerce, and some health/healthcare sectors, like pharmaceutical companies and health insurers. Hospitals themselves lost millions of dollars per day due to the pandemic because they had to postpone elective procedures and surgeries.

So why did the economic crash happen in the first place? It was a different situation than the recession of 2008, and the Great Depression in the 1930s. Those were demand shocks— events that increase the demand for goods suddenly. However, the COVID-19 economic recession was a supply shock – where an event disrupts the supply chain, affecting international trade and every nation’s economy. Examples of this include the worldwide industries of travel and tourism, falling demand for oil, and online and physical retail. To counteract the economic crisis, the federal government distributed stimulus checks to individuals fulfilling lower income criteria. Although this temporarily helped citizens with their daily needs, and the Paycheck Protection Program for small businesses kept the workforce employed, the $2.2 trillion bill put the US 9% deeper into federal debt, currently exceeding $23 trillion, excluding interest. 

Photo credit: Steven Southworth.

The White House and the Center for Disease Control have released guidelines for reopening the economy, schools, businesses, and public spaces. However, the current concern is deciding the optimal time to begin to reopen different regions, guided by local disease transmission while attempting to avoid another complete shutdown, which could be disastrous for a recovering economy. For example, health officials have been worried about the increase in COVID-19 cases after the unrestricted reopening of bars and restaurants in Florida.  Anthony Fauci, the nation’s leading infectious disease official, explained, “We want to do everything we possibly can to avoid an absolute shut down, in other words, get the cases under control by the common sense types of things we’ve been talking about all along, those public health measures.” With the public health guidance from national experts and the projected availability of the COVID-19 vaccines in development, hopefully, the country will be on the path to economic recovery.