There’s about $3.4 trillion sitting in the collective bank accounts of American households—a historic number. But it’s not going to stay put forever, said Dan White, senior director of public sector research for Moody’s Analytics.
Speaking at the 2021 NCSL Legislative Summit in Tampa, Fla., White presented a session focused on the nation’s economic outlook following the onset of the pandemic and the federal government’s distribution of trillions of dollars in stimulus and recovery funds.
Citing Moody’s baseline economic outlook—or, what the financial services company’s experts see as the “most likely outcome”—White said there’s a whole lot of money “just sitting on the sidelines, waiting to buy something or waiting to invest in something.”
There’s a whole lot of money “just sitting on the sidelines, waiting to buy something or waiting to invest in something.” — Dan White, Moody’s Analytics
“This money is going to go somewhere and even if it only goes into an investment, that’s still going to drive some kind of economic growth,” he said.
And that money has been a positive thing for consumer confidence, he added.
“This has been a really good thing for the economy as a whole and it really seeks to demonstrate why the U.S. economy is outperforming most of the other industrial economies in the world right now,” White said. “Our vaccination rates are good—they’re not the best in the world but they’re not the worst. Our COVID numbers have been pretty good—not the best in the world but not the worst. What really differentiates our economy right now is the fact that we just took $5.4 trillion dollars and shoved it into the U.S. economy in a very short period of time.”
However, while having $3.4 trillion in bank accounts is “awesome,” White said, “less awesome is if you tried to buy anything in the last 12 months; it’s probably way more expensive than it was before the pandemic.”
And that’s not going to change anytime soon, he said, adding that the baseline forecast assumes the supply chain shortage will not abate for another year or year and a half and higher inflation, around 5.5% to 6%, may stay high for more than a year. “Get ready for higher prices for a longer period of time.”
Views on Unemployment Changing
Employment numbers are also an important piece of the economic outlook puzzle.
According to White, 22 million jobs were lost during the recession brought on by the pandemic, and while most states are returning to business as normal, full employment is not predicted to be regained until mid-2023, give or take six months on either end.
And while most people tend to define “full employment” by the unemployment rate, White said that’s no longer a very accurate indicator of how tight the labor market is, as the unemployment rate only includes those actively looking for a job. “So, if they have pulled out of the labor force—they don’t want to work anymore or they can’t work anymore for a variety of reasons—they are not counted as unemployed,” he said.
Instead, economists refer to a concept called EPOP, or employment-to-population ratio, which in a good economy sits at or above 80% for workers in the 25-54 age group. The pandemic, according to White, caused the largest decline in EPOP ever seen in American history since reliable data has been recorded. “The good thing about the pandemic was it wasn’t like your car ran out of gas, it was like your electric just got unplugged,” he says. “So, you plug it right back in and most of the economy came back online very quickly. But then the rest of the economy did what we normally do during a recession, which is still a very slow slog, trying to get people back into the workforce.”
And that’s probably what legislatures are witnessing in their local economies, he added.
“You’re not seeing a huge amount of unemployment as we would measure by the unemployment rate,” he said. “You’re seeing a bunch of jobs that are going unfilled because people are not reentering the workforce. … This is going to be a lengthy recovery.”
White also pointed to the difference in employment rates between men and women when it comes to EPOP, with many traditionally male jobs recovering quite quickly since the onset of the pandemic, while the women’s labor force is not coming back at the same rate seen after the Great Recession. He noted that caregivers, especially those of children, the infirm and the elderly, many of whom are women, are anxious about having time to devote to both work and home as the pandemic continues.
Doing Business With COVID
But White said Moody’s predicts employment will continue to grow, in part because “we’re hoping that we are getting to a point where we are starting to learn how to live with COVID or at least do business with COVID.”
“There are a lot of industries that could not have operated in this environment a year and a half ago that are now operating in this environment and have figured out ways to do it,” he said. “The other thing is there is a tremendous amount of demand out there just waiting to be satiated.”
That’s good news, White said. “The better news is when all these things start to reopen again and we get back to full capacity to engage in economic activity, there is a tremendous amount of pent-up demand.”
Lesley Kennedy is a director in NCSL’s Communications Divisio.