screenshot of dan white with moody's analytics during ncsl's state policy 101 event

Post-Vaccine Economy: Hints of Normalcy but Uncertainty Lingers

By Mark Wolf | Feb. 8, 2021 | State Legislatures Magazine

Most recessions are a relatively slow process, Dan White explained during the kickoff session of NCSL’s State Policy 101 event.

“They are more like a car running out of gas very slowly,” said White, director, government consulting and fiscal policy research for Moody’s Analytics. “The signs are coming and eventually you run out of gas and finally pull over to the side of the road.”

But the COVID-19-sparked recession? Think NASCAR. With teenage boys behind the wheel.

“This one was like directly unplugging everything,” White said of the downturn that gobbled up a third of the economy in one quarter, the largest quarterly decline in U.S. history.

And when businesses began reopening last August many economists, he said, were lulled into a false sense of security: “We more or less moved sideways from August for four or five months.”

The good news, White said, is that the post-vaccine rally is beginning to look like a normal recovery, though still with a lot of uncertainty—to wit, the pandemic and Congress, neither of which are predictable.

Vaccine Rollout Critical

“The biggest thing that’s going to dictate the recovery is going to be the vaccine rollout and the amount of time it’s going to take us to open up business activity in a way most people are comfortable with,” he said. The bad news is that, if you ask epidemiologists how many shots we have to give people to get to that point, you get different numbers. “The one we have the most confidence in is that, given the number of people already exposed to COVID in the last eight months, we need 25 million folks fully vaccinated before we see a decline in the case levels,” he said.

White estimated the U.S. could reach that level sometime between late February and early March.

One problem, he said, is the disparity of vaccinations among states, with less than 1% having received it in some cases and more than 4% in others. “But we’re early enough in the process that a lot of this ground can be made up,” he said.

Stimulus money from Congress has made all the difference in terms of the forecast so far, White said. “Without the December bill, we likely would have gone into another double dip recession.”

Relief Is Not ‘Free Money’

President Joe Biden’s proposed $1.9 trillion stimulus bill, he said, “would basically put us on par with 25% of the pre-pandemic economy. We’ve borrowed by far the most of any country in the world. It’s one of the reasons our economy has been better than other parts of the world.”

But the ramifications could be a tremendous burden on future debt levels. “During the Great Recession, the federal government spent about 10% of the economy,” he said. “That’s not free money and had a significant impact on forecasts of federal debt. Some austerity is going to have to happen sooner or later. Once we get beyond 2022 and 2023, we may not see things quite as rosy as we’d like to see.”

Medicaid, he said, is “one of the canaries in the coal mine” during a recession.

States should watch employment forecasts carefully, because they track very close to Medicaid enrollment. “The number of unemployed persons has changed dramatically during the pandemic,” he said. “We do expect to see significant number of appropriations bills passed and those will help bring unemployment numbers down. If we don’t see that, in the near term it makes for a darker scenario.”

Since this is the first recession since the Affordable Care Act was passed, it’s possible economic models don’t know quite how to handle the ACA expansion and they may be overly pessimistic.

“Right now we see Medicaid increasing by 21% from 2020 to 2022,” he said. “We saw about a 24% increase in 2001-2003, and during the Great Recession, we saw about 19%. A significant number of people (3 million to 4 million) who have lost jobs haven’t signed up for Medicaid but will sign up soon. About 10 million Americans are still classified as unemployed.”

Targeted Aid Necessary

Combining state numbers and rough rules of thumb about local governments, White calculates $330 billion in gross state and local shortfalls from the pandemic, which, he said, was $80 billion to $100 billion less than what was expected last spring. Calculating federal stimulus money and $80 billion in rainy day funds, the net shortfall is projected to be about $86 billion.

However, he said, states are unlikely to be able to use all their rainy day funds, which are not evenly distributed among the states.

“What it all argues for,” he said, “is any additional aid that comes down should be a much more targeted approach than things we’ve seen in the past.”

Mark Wolf edits the NCSL Blog.

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