When will the U.S. economy recover?

Information verified correct on May 27th, 2021

We’re bringing together some of the brightest minds in finance and economics. Mark Zandi, the chief economist at Moody’s Analytics, answered our questions about the new normal of work, everything from which jobs are going extinct to what the future workplace will even look like in a post-pandemic world.

What is the workplace look like once the workforce is vaccinated?

Well, it’ll start getting back to the office, probably later this summer after July 4. We’ll be close to herd immunity at that point, and businesses will feel comfortable welcoming their employees back.

But I don’t think there’s any way we’re going to go completely back. Let me give you a statistic: prior to the pandemic, just under 10% of the workforce work from their home on a consistent basis. That’s data from the Bureau of Labor Statistics. Last April, that was in the teeth of the business shutdowns, 35% of people are working from home consistently.

If you told me, late this year after everything reopens, we’re back down to 15-20% of the workforce working from home, that sounds about right to me. And then, going forward, I expect businesses will figure out how to empower work from anywhere, and we’ll see the share of the workforce working from home increased steadily over time. So it’ll swing back a bit as the pandemic winds down, but we’re not going back to where we were. And I think work from anywhere is a fundamental shift. It’s not temporary.

US economy

Employers are legally allowed to fire employees if they refuse to get the vaccine, but do you think any of them will actually go through with it?

I think some employers will put pressure on employees and suggest that they need that for their own protection and the protection of their own colleagues. And that pressure will also lead to increased vaccinations over time. It’s an issue now, maybe three-six months from now, but a year from now, I suspect this isn’t going to be that big of an issue.

How is commercial real estate adapting to the post COVID world? Do you think we’re done with the days and the big flashy city headquarters?

Now there is a reasonable debate, and I haven’t quite figured it out, in my own mind, about space per employee. So, for example, are workers going to be nervous about working in close quarters with their colleagues. Before the pandemic, there was this move to bringing everyone into a common area, having them working together because the thought was that this improves collaboration and communication and generates new ideas and innovation.

And we may not feel the same way about that. Particularly if there’s another pandemic, I think that would totally change people’s feelings about what kind of space they want when they go to work. One of our biggest problems during the pre-pandemic was very weak productivity growth. It was 1% per annum, which has happened, what we’ve been experiencing through most of the post-World War II period.

And so, if we continued on that path, our standard of living would be significantly diminished over time. So the question is, on the other side of the pandemic, are we going to go back to that 1% world a very slow productivity growth that we felt like we were trapped in? Or are we going to go to something bigger and better than that? That’s a very significant question. That’s a very important question for all of us.

How long will it take the economy to recover fully? And what will the shape of that recovery look like?

Suppose by the early 23, we’ll be back to full employment. That means it’ll have taken roughly three years to get back to full speed. Think back to after the financial crisis. It took 10 years, and after the Y2K bubble, that took us six or seven years. And if you go back to the SNL crisis that took 6-7 or seven years, so by the standards of recoveries that we’ve experienced in recent decades, this is going to be a V.

On that point, how will our economy fundamentally shift if a significant number of employees continue to work from home for the next several years, or even indefinitely?

I think it’s a positive. It’s good for the employees. They’re obviously making a choice, and they’re taking advantage of lower cost of living, cheaper housing, lower taxes, shorter commutes, so they’re going to be happier. I think employers will figure it out as well. But it’ll take a little bit of time.

What are the tax implications of a remote workforce? And what does that do to cities and social services?

It’s going to be a problem for cities that lose people. I mean, I lived in New York, worked in New York, and now I live and work in Florida. And obviously, one reason I’m doing that is for lower taxes. Florida doesn’t have an income tax, and New York has a pretty high-income tax for particularly high-income workers. So the tax base will suffer in New York as a result. Property taxes will be affected. We talked about commercial real estate – simple commercial real estate properties will be lower, the value of housing will be lower. And so that affects property taxes, which are key to local government.

Are we further fomenting the class divide by separating those who can work from home forever from those who can’t?

Obviously, the pandemic was very hard on low-income, low wealth households. Higher-income households did very well because a significant part of high-wealth households, in many cases, could work from anywhere. They weren’t deemed essential workers, and they didn’t have to go out. So high-income households benefited from that they never really lost their jobs. They could continue to work from home, have good health care, own a home, own stocks, and of course, we’ve seen stock prices and housing values go skyward, so they’re much wealthier today than they were before pandemic.

Conversely, low income, lesser-skilled workers, minority groups, in particular, came into the pandemic, probably not owning any stock, lucky to own a home. And, of course, those are the folks that lost their jobs in the pandemic or got their hours or wages cut – they got completely hammered.

I think the pandemic put into very clear relief. We all knew about it prior to the pandemic. We knew this is a problem that is becoming more of an issue is even becoming a macroeconomic issue. But the pandemic just made it very clear. Obviously, we have to do something about it if we want to have an economy that will flourish going forward.

We’ve seen women fall out of the workforce at a higher rate because of the childcare crisis in the past year. Do you see this trend persisting post-COVID? Do you think the government should be stepping in to do something about it?

I think it will be very different post-COVID. When schools open, and it feels like that starting to happen in many other parts of the country, we will see many women who’ve come back into the workforce. A lot of the exit of women out of the workforce during the pandemic was to take care of kids because kids couldn’t go to school, couldn’t go in person. Now that they can go back, I think we’re going to see those moms go back to work. And actually, it’s a lot of dads too.

If you think about all the policies that are being implemented as part of the American rescue plan or what’s coming down the road, a lot of it is centered around trying to make it easier for women to go to work. So I think there is a very strong effort by The Administration and this Congress to provide the financial support that’s necessary to allow women to go back into the workforce and stay in the workforce for longer.

Because of the pandemic, which industries or jobs do you think will be extinct in the next five years?

I think anything related to travel is going to have a struggle. Tourism, particularly domestic tourism, will find its way back pretty quickly. But global tourism, that’s going to take a bit of time because while the U.S. is going to achieve herd immunity quickly, probably sometime this summer, the rest of the world, it could take 2-4 years. So tourism will find its way back, although it’ll take a bit of time.

Business travel – I don’t see that coming back. At least not the way it was prior to the pandemic. I can take my own personal experience. I have a couple of hundreds of economists that report to me all around the world. And after our compensation and rent, business travel expense was our third highest expense. And that was obviously that went to zero in 2020.

What do you think are the next wave of companies that are poised to succeed in a post-pandemic world. Are the enterprise and b2b space, for example, about to get a lot more interesting?

One part of the economy that’s going to really take off here is manufacturing, industrials, and transportation – the good side of the economy is going to really get a lift because global supply chains that had been lengthened across the globe prior to the pandemic are now disrupted. They’re going to be resurrected and be brought in closer to home.

And a lot more activity is going to be brought home, particularly those types of activities that are key to national security, things like pharmaceuticals, chips, sophisticated instrumentation, and materials. I think because we’re going to get very large and old like an infrastructure package later this year. A lot of that is going to go to roads, bridges, water systems, 5g, green technologies, new E.V. vehicles – that’s going to create a lot of demand.

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