Dispatches from the Potomac#44 | Is the Full Economic Fallout from the COVID-19 Pandemic Yet to Come?

This is a translation of an article originally written in February 2023 for publication in the April 2023 edition of the Marubeni Group Magazine, M-SPIRIT.

General Manager, Washington DC Office, Marubeni America Corporation    Yoichi Mineo

COVID: Out of Sight, Out of Mind

The beginning of the COVID-19 pandemic in the U.S. was marked by a sense of uncertainty and anxiety as businesses closed and public events were canceled. What followed was widespread panic buying and hoarding of essential goods, including groceries, cleaning supplies, and personal protective equipment (PPE) such as masks. Many people rushed to stock up on essential items, leading to empty shelves and shortages of many products. My wife and I were able to find groceries by going to a store that accepted EBT (Electronic Benefits Transfer) cards, which are used by shoppers who participate in government assistance programs. Stores that accepted EBT cards tended to have a better stocked inventory compared to other stores, as many shoppers who relied on EBT cards for their groceries were unable to afford to stockpile supplies and therefore were more likely to make frequent, smaller purchases.

Now, three years later, many Americans consider COVID-19 a thing of the past. After a period of economic uncertainty, the tide has turned and stores and restaurants are thriving once again, with shelves stocked and diners eagerly filling seats. The economy has bounced back with a robust increase in GDP and the lowest unemployment on record. It’s difficult to contest President Biden’s assertion that his economic policies have yielded positive results.

The lived experience of many individuals (including myself), however, does not necessarily align with what the macroeconomic indicators might suggest. Prices for staple grocery items, such as meat, eggs, and dairy, have remained stubbornly high. Despite skepticism just a few years ago, my prediction of a resurgence in the airline industry has been vindicated: airfares have increased by 12.7% annually in response to soaring demand. Leaving a tip at coffee chains is now the norm, with many payment systems offering suggested gratuity options of 18%, 20%, and 25%. And even if you’re prepared to pay these steeper prices, you might not get the quality of service you were hoping for. Some restaurants are unable to serve certain menu items due to a shortage of workers. A recent shortage of small bills has resulted in some banks being unable to provide them to customers. Long lines and less frequent restroom cleaning became commonplace at highway service areas during the pandemic and continue today.

But Pandemic Effects Remain: Huge Government Stimulus Yields Lingering High Prices

The combination of high prices and low-quality services may not be viable in a normal market, but government COVID stimulus has kept these businesses running. The government’s financial assistance has created a situation where customers are willing to pay for low-quality services, while workers have the flexibility to remain unemployed even as the COVID-19 pandemic threat fades away.

But the present circumstances cannot continue indefinitely. Once the government stimulus runs dry and people’s pandemic savings are exhausted, things could get difficult. When that happens, consumers are likely to cut back on their spending, which will lead to lower sales for businesses. This, in turn, will result in fewer job openings and increased competition among job seekers. The current labor market conditions, artificially created by government stimulus, heavily favor sellers. However, a reversal in market conditions could create significant challenges for workers.

The COVID-19 pandemic led to an influx of government stimulus, some of which may not have been necessary, and as a result, created economic uncertainty. Taking that viewpoint into account, despite the decline in cases, the economic fallout from COVID could still lie ahead.