Hooray. The U.S. economy has recovered so quickly that it is now bigger than it was before the pandemic. But it’s not time to celebrate yet.
After a sizzling annual growth rate of 6.5% in the spring, the size of the economy surpassed its pre-coronavirus peak. And it happened much faster than virtually anyone would have expected a year ago.
“Last year the US economy was on the verge of a Great Depression at that time,” said Chief Economist Scott Anderson of the Bank of the West. “Much of the leisure, hospitality, and service industries have been on their backs, and the US unemployment rate has hovered around 10.2%. What a difference a year makes. ”
Still, the economy is still not nearly as big as it would have been without the pandemic. Economists estimate that it is about 2.7% smaller than it would have been without COVID.
Well, 2.7% may not sound like much, but in a $ 22 trillion economy, a lot of jobs, worker wages, and corporate profits are missing.
The lack of jobs is still a major problem for the economy.
Although most of the 22 million people laid off at the start of the pandemic have returned to work, the labor force is still 6.7 million short of workers.
The labor shortage has become one of the major headwinds to economic recovery.
Many companies cannot find enough workers to serve guests, clean hotel rooms, build houses or manufacture industrial goods. Even higher wages or recruitment bonuses were not enough to get more people back into work.
People are returning to the job market, but not as quickly as companies would like.
Economists estimate the US created about 900,000 new jobs in July, which has cut official unemployment a few ticks to 5.7% when the data is released next Friday. This would mean that the economy would still be short of almost 6 million jobs.
See: MarketWatch economic calendar
Surveys of the unemployed show that up to a few million extra unemployment benefits introduced during the pandemic make enough to stay at home. Half of the US states recently suspended additional federal benefit payments in an attempt to get people back to work.
Millions of others say they are staying home to care for young children or aging relatives. Others are still concerned about contracting the coronavirus.
The popular belief was that these people would go back to work in the fall, when schools and nursing homes fully reopen and additional unemployment benefits run out.
However, this view is being challenged by the recent surge in coronavirus cases due to the more contagious Delta strain.
Biden’s government is urging people in many parts of the country where the virus is spreading to wear masks again.
Read: The withdrawal of unemployment claims from the two-month high in the sign delta did not do much harm
However, the delta variant alone should not be enough to inhibit recovery.
Federal Reserve Chairman Jerome Powell pointed out last week that each new wave of coronavirus cases has done less damage to the US economy. Businesses and consumers have largely learned to adapt, he noted.
Perhaps the greatest danger is that the delta variant will harm other countries even more and keep the global economy in suspense. Trade between countries is severely disrupted and one of the offshoots is rising inflation.
Read: Inflation rises again in June as the US economy suffers from congestion
Take manufacturing. US companies cannot get enough supplies, much of which are produced overseas, to supply all of the goods Americans crave. Car production in particular was slowed down by the lack of computer chips.
These problems are likely to last well into the fall – replacing the day the US economy fully recovers.
“After a brilliant start to the global recovery, it is becoming more and more apparent that the last mile will be the toughest due to supply problems and the spread of the Delta variant,” said chief economist Douglas Porter of BMO Capital Markets.