Economic Outlook: Zombies, robots and big unknowns lurk as the U.S. economy recovers from pandemic


Don’t let anyone tell you otherwise. The U.S. economy is going through a unprecedented period after having been shut down by government decree. Whether you have a doctorate in economics or not, it is a guess how it will work out.

In the immortal words of former Secretary of Defense Donald Rumsfeld, there are a lot of “known unknowns” out there.

Big questions are up in the air for workers. Will your company survive? What will the office even look like? Will you be replaced by artificial intelligence?

It’s just hard to know. There are raging debates among economists about how things will shake out. We’ve never had a post-war recession where the service sector was hammered. It has always been manufacturing sector that led to the ups and downs.

Clues will come in the economic data. But there are no magic bullets.

“Mankind for 5,000 years has been searching for three indicators that tell you how the economy is going to go south. They do not exist. Because what worked in the last downturn is never going to work in the next one,” said Rajeev Dhawan, director of the Economic Forecasting Center at the J. Mack Robinson College of Business at Georgia State University.

Here at MarketWatch, we’re going to keep track of these big questions and let you know how and when answers arise and what new “known unknowns” emerge.

Here are some of the fundamental questions facing the economy:

What will returning to the office even be like?

There’s a lot of chatter that workers might “time share” in offices, rotating a few days a week.

This will be bad news for restaurants, downtown sandwich shops and dry cleaners as people spend less time at work.

Jerry Nickelsburg, faculty director of the UCLA Anderson Forecast said he thinks there is a lot of “wishful thinking” going on about office work. He said there is no evidence that bosses won’t eventually want workers in the office every day.

“Maybe we wish we won’t be commuting every day, but there is no data that we won’t be commuting every day,” he said.

And the idea that companies will let their workers remotely from Grand Junction, Colorado or other scenic locals will probably be limited to older workers who are not climbing the company ladder, Nickelsburg said. And these remote workers won’t be in line for raises as companies won’t have to compete for their services, he added

Whether business travel stays weak is another unknown. Over the years, a lot of infrastructure and employment has grown up around consultants and executives who spend most of their working week on the road.

Where will the workforce live?

Sadly, living at the beach is seen as a remote possibility Living in downtown high rise apartments might lose some luster. There could be a shift to smaller cities near major urban areas.

“We just don’t know yet,” said Dhawan.

Dhawan said even he had been thinking about moving into a high-rise some day. “No way after this pandemic.”

How big a hit is the commercial real estate and apartment sector going to take?

Will robots take more jobs?

There has been an acceleration in technology adoption but how that plays out remains uncertain.

There will probably be more technology adoption than before the pandemic.,” said Nickelsburg.

Already, grocery stores, restaurants and hotels have been able to put in labor saving technology.

Which companies are zombies?

“In the U.S., a lot of firms have accumulated a lot of debt as a consequence of trying to stay alive during the pandemic,” said Stephen Cecchetti, an economics professor at Brandeis International Business School. It remains unknown whether they will be able to service that debt. Deciding which firms to save will be a thorny public policy decision, he noted.

“You don’t want to kill things that are viable enterprises going forward,” Cecchetti said.

Companies that were viable businesses – if not for the pandemic – should be identified. But businesses like shopping malls and big box retailers should not be helped, he said.

“Figuring it out is really hard and deciding what to do about it is going to sound really cold,” Cecchetti said.

Will Americans save more money in case of future troubles?

Looking at the economy, Barry Eichengreen of University of California Berkeley says he doesn’t start with inflation or interest rates but with things like precautionary savings. “I was wondering whether people are scarred by the pandemic once they realized they couldn’t put food on the table and had to go to food banks would up their precautionary savings. That would mean weaker private spending and lots of room for government spending and therefore the fiscal stimulus in the pipeline won’t translate into higher inflation or higher interest rates”, he said. Recent data suggests consumers are going back to their profligate ways. Dhawan of Georgia State said sales of watches and jewelry are now running faster than pre-pandemic.

What will happen to inflation in 2022?

The idea that inflation will rise above the Fed’s 2% target this year no longer is controversial. Joseph Gagnon, a senior economist at the Peterson Institute for International Economics, said all eyes are on 2022. “It’s really next year that is the issue,” he said. The Fed is projecting that inflation will soften next year to 2% after hitting 2.4% rate this year. But Gagnon thinks the inflation rate could go as high as 3%.

Read: Larry Summers is worried about inflation

Mark Gertler, a professor of economics at New York University, said that we’ve been living with a low inflation world for so long that we’ve become used to it.

There could be a parallel with the 1970s. Back then it was impossible to imagine low inflation, he said. “Could we fall into the same trap of complacency,” he said.

“I’m not saying that it’s going to happen in the next year or two, but we could eventually get back to an environment where the problem will be getting inflation down to target as opposed to getting it up to target,” he said.

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