Oxford Casino, which closed on March 16 in response to the coronavirus, has barricaded its main entrance. It will remain closed until further notice. Nicole Carter / Advertiser Democrat

Public officials trying to balance health and safety with economic well-being are working on plans to “reopen” the U.S. economy. Beyond the questions of when and how reopening could safely occur is the critical issue of what shape it might take. Will we have a sharp, V-shaped recovery, as some are hopefully predicting, or will the new normal be more sluggish and discouraging? Consumers, who have always been critical to the economy, are unlikely to be able to propel it forward from this crisis even after the covid-19 threat has receded.

A big clue to what may happen lies in the economic expansion the United States enjoyed for the past 11 years, coming out of the Great Recession. The economy’s positive trajectory was largely due to U.S. consumers, whose spending levels fueled a steady rise in gross domestic product. Consumer spending and consumer confidence held up admirably through dips in the world economy, large swings in energy prices, an ebbing of business investment and the uncertainty of tariff wars, thus enabling the U.S. economy to weather these storms.

But there are three major reasons that U.S. consumers – the backbone of the economy at all times, with consumer spending amounting to two-thirds of GDP – are likely to come out of the covid-19 crisis no longer able, or willing, to bear the same load as before. That means that Wall Street investors counting on ordinary families to continue propping up the business cycle are likely to be sorely disappointed.

First, the rapidly deteriorating job market will hurt consumers badly, and for many the damage will not be temporary. Until last month, unemployment was at historic lows: It was 3.5% in February. More hours worked meant more income for most families while pushing the wage curve higher. All that positive momentum is gone. Unemployment is certain to spike above 15% soon, and many small businesses that operate on thin margins will go bankrupt. Sober estimates of continuing job losses, such as a recent assessment from the Congressional Budget Office, suggest that unemployment will remain high for some time: The CBO predicts 9% unemployment even by the end of 2021.

Projections of a V-shaped recovery do not account for the effects of such a massive disruption to the economy. Business activity is chunky, rather than smooth, in the wake of unexpected events. The economy is not like electricity, the flow of which can be switched on and off. Economic activity is the sum of billions of discrete decisions, influenced by available financing, uncertainty and differing expectations. Such activity is not able to snap back into place suddenly, as much as we might hope it would.

Second, many businesses will not regain the same vigor because they are dependent on strong consumer demand. Inevitably, some Americans will remain unemployed longer than others. Those who go back to work quickly are still likely to emerge from their experience of staying home with less ability to resume spending at the same levels. Large numbers of households are falling behind on major debt obligations, such as rent or mortgage payments, auto loans and credit card bills. Even those who return to pre-crisis jobs will have to cope with the burden of this overhanging debt, which will constrain their discretionary spending for months or even years to come.

Third, the wrenching experience of the pandemic is likely to change many consumers’ behavior. As happened in the Great Depression, this crisis has reminded people of the fragility of their financial situations, making them more cautious about borrowing and spending. Social changes, too, are likely to linger. Until people feel sure about an effective vaccine and manageable treatment for the virus, they may be reluctant to travel or even to circulate as widely as they used to, producing lower levels of economic activity overall.

In Washington, officials are trying hard to keep the financing sluices flowing, but when the economy breaks, it cannot quickly be glued back together. Without the engine of consumer demand producing the same impetus for growth, as it did over the past decade, we need to brace for a slow and painful recovery this year, and perhaps even in 2021. In our market economy, the consumer is king. But right now, as Shakespeare observed, uneasy lies the head that wears the crown.

Richard Cordray was the first director of the Consumer Financial Protection Bureau.


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