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By Steve Metsch
The financial picture is “rosy” compared to last year as businesses are slowly coping with impacts of the coronavirus pandemic, a Federal Reserve Bank official told area chamber of commerce officials.
Anna Paulson, an executive vice president and director of research at the Federal Reserve Bank in Chicago, met Wednesday via Zoom with representatives of 28 local chambers of commerce for the 2021 Multi-Chamber Economic Outlook Presentation.
John Quigley, president and CEO of the Elmhurst Chamber of Commerce & Industry, said Paulson leads the research and policy analysis work, providing analytical support for monetary policy making.
She also researches banking and financial matters, and economics, Quigley said. After introducing her, he said, “Anna, tell us some good news for 2021.”
That she did, adding the views are her own and not those of the Federal Reserve Bank of Chicago or the federal reserve system.
She noted that one year ago, a New York Times story asked when the virus was going to end. At that point, there had been four deaths at the “beginning of an awful year for the nation.” When the end comes is still unknown, Paulson said, after roughly 514,000 deaths in America.
Paulson reviewed the virus’s impact on the economy in the past year and what it means for the future.
With the number of cases and deaths falling sharply in recent weeks, as vaccinations increase, there are reasons to be encouraged.
“We definitely aren’t out of the woods yet, but things look much better than they did even a couple of months ago,” Paulson said. “As of last week, doses have been administered to roughly 8% of the adult population.”
With projections that herd immunity is possible for later this year, “there’s a strong case for cautious optimism,” she said.
“2020 was not a good year for overall activity, as you all know, but the economy proved to be more resilient than we had thought in the middle of the year,” she said.
The Gross Domestic Product ended 2020 some 2.3 percentage points below its 2019 level, and was 4.4 percentage points below where it had been expected. “But 2020 could have been much worse,” Paulson said, noting it was projected to be 6.5 points below 2019.
The resiliency of the 2020 economy can be attributed in part to a strong recovery in wages and salaries, a good housing market and a robust stock market.
Also, consumers shifted spending habits from services with elevated virus risks to goods with lower risks. The thinking may be: “I may not want to get on a plane or go to a restaurant, but I can safely buy a couch or a car.”
Spending on services was down 7%, but spending on goods was up 7%, she said.
Manufacturing is on the increase, she said, and factory output has returned to near pre-pandemic levels, she added.
It’s not without some problems, though.
There are 10 million who’ve lost jobs, and nearly 40% of the unemployed have been out of work 27 weeks or more. And a large number of people have completely dropped out of the labor force.
“A lack of optimism on behalf of small businesses likely reflect their increasing vulnerability as activity continues to be hampered by virus concerns,” Paulson said.
The disruption in normal school settings has implications, too. A sharp drop in enrollments in two-year college may hamper the job market, for example, she said.
Overall, “we’ve made a lot of progress” she said, “but risks remain elevated and the virus remains a real threat particularly with new or more infectious varieties.”
However, a growth of 6% is expected in the Gross Domestic Product with “robust activity in the second and third quarters,” she said.
“To sum up, we’ve been through an awful, awful year. And while we’re not out of the woods yet, the outlook for growth in 2021 looks rosy, with growth projected to be in the neighborhood of 6%,” she said.
The “key ingredients” are progress on the virus and vaccines, fiscal support, continued monetary policy accommodation and continued resilience by consumers and businesses.
A brief question-and-answer session was held.
Low-interest rates and robust building are expected to continue in the housing market, she said, despite supply being short.
She’s heard comments that expanded unemployment payments make it harder for employers to bring people back to work. Reports on that are mixed with those not actively seeking work and others “eager to make ends meet and find jobs.”
Automotive sales have “been booming” in Elmhurst and Westmont, said Quigley, who wondered why that is so.
“Why are people buying cars? There are a few things at play,” Paulson said. “The pandemic has had an uneven impact on individuals. ... There’s a lot of people able to maintain their lifestyles even though they were very disrupted.”
Low interest rates make buying cars attractive as do pandemic relief payments from the government.
“And there’s been an increased demand for cars because people are reluctant to use public transportation [and perhaps risk infection],” she said. “The auto market has been really quite strong, and is experiencing some supply disruptions.”
The long-term impact of the stimulus bills is hoped to allow people to continue to invest, grow and hire employees. She’s hoping it will boost wages, salaries and profits “which will increase taxes and revenues.”
“It’s pretty accepted it’s a good role for the federal government to play,” she said.
“The pandemic has lasted longer than we all thought, but it would be worse if people aren’t able to maintain employment relationships, if businesses can’t stay in contact with customers and if life is disrupted longer,” Paulson said. “This support has helped maintain those relationships and gives us a base to recover more robustly from.”
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