4 Types of Economic Damage Experts Predict From COVID-19

coronavirus shutdown
Blue Planet Studio / Shutterstock.com

The coronavirus pandemic has upended lives and livelihoods and will leave long-lasting damage to the U.S. economy, analysts warn.

The Brookings Institution think tank predicts that people will travel less, businesses will space workers and customers apart, restaurants will serve fewer customers at once and stadium-filling sporting events and concerts will remain off-limits for a long time.

“Even if the rules allow, many people may be reluctant to return to life as it was before the pandemic,” Brookings says.

While many want to get their hair trimmed and see a doctor, fewer than 1 in 3 this summer expect to stay in a hotel, fewer than 1 in 4 plan to fly and fewer than 1 in 5 expect to attend a concert or sporting event, according to survey results.

The Brookings report identifies four broad categories of damage to the U.S. economy. Here’s a look at each.

1. Consumers’ ability and willingness to spend

Myriam B / Shutterstock.com

The industries most battered by the coronavirus pandemic — retail, hotels, transportation — rely on the comfort of consumers, Eric Rosengren, head of the Boston Fed, tells CBS’ “Face the Nation.”

“It’s not just that you have to open up the businesses,” Rosengren says. “Consumers have to be comfortable going back and shopping and going out on planes and into hotels.” The comfort level Americans experienced before the pandemic hit may take “either a vaccine or other medical innovations that make it much less risky to go out,” he says.

Until then, the economy may lag and unemployment may remain high.

Less than half (47%) of all U.S adults in an April 2020 Pew Research survey said they had money set aside to cover expenses for three months in case of an emergency. Pew’s responses varied widely by income group: 23% of lower-income people had the three-month cushion, compared with 48% in the middle-income bracket and 75% with upper incomes. Viewed through the lens of race, 27% of blacks, 29% of Hispanics and 53% of whites said they had the savings to weather an emergency for three months.

Laid-off workers may drain savings, delay mortgage and credit card payments, and suffer declines in credit ratings, the Brookings report says.

“That means that — even once the economy opens up again — they may be unable or unwilling to spend as readily as they did before the virus appeared,” Brookings says.

2. State and local government finances

PhuShutter / Shutterstock.com

State and local governments from Florida to Alaska are dealing with drastic drops in tax revenues that impair their budgets just as they see demand for services due to the pandemic spread, as we detailed in “Where COVID-19 Is Hitting State Revenue Hardest.”

For one example, Ohio Gov. Mike Dewine announced in a Twitter thread in early May a “difficult budget cut decision” to eliminate $775 million in state spending over the next two months.

“While we do not know what the coming months will hold, we do know that COVID-19 is here with us and will be here for quite some time. Nevertheless, it does not exempt us from balancing our budget, which we are legally obligated to do.”

Income- and sales-tax revenues are plummeting and the demand for Medicaid and other programs is increasing, the Brookings report says. State and local governments will have to cut spending — mostly by cutting employment — or raise taxes, Brookings says.

“It took 10 years for state and local employment to rebound to pre-recession levels after the Great Recession,” the report continued.

Brookings recommends federal aid to offset states’ coronavirus-caused loss of revenues and added spending.

“Such assistance would prevent them from cutting public services to balance their budgets and also would increase the odds of a robust recovery,” Brookings said.

3. Bankruptcies and lower investment by businesses

dokurose / Shutterstock.com

New businesses need to find financing, locations, suppliers and workers, the Brookings report says.

“If a business declares bankruptcy and shuts down during the pandemic, that whole process will have to begin anew. That will take time and money, and make the recovery slower,” it says.

Firms fearful of a coronavirus resurgence or a new virus may shun spending on equipment or research and development. Their reduced productivity could hold down the economy, Brookings adds.

Small businesses, which employ nearly half of American workers, are economically fragile, according to a paper by a group of researchers from major universities. They surveyed 5,800 small businesses in early May. Small businesses’ responses to the survey “suggest that many are likely to fail absent assistance,” the researchers concluded.

4. Lost human capital

Unemployed worker
Parinya Maneenate / Shutterstock.com

Matching laid-off workers to jobs also may slow the economic recovery, the Brookings report says, noting that the relationship between workers and employers is valuable.

“If businesses lay off their workers during the lockdowns, those workers might start looking for other jobs, or they may leave the labor market altogether,” the report says. “That means that all that human capital will be lost.”

However, two-thirds of Americans responding to an April Qualtrics poll, including all age groups in roughly equal proportions, expressed discomfort about the safety of returning to work.

Among popular safety measures, wearing masks and social distancing ranked high, the poll showed, with a majority (57%) saying they wanted all employees to be required to wear masks.

Those polled said that assurances from medical sources like the Centers for Disease Control and Prevention (63%) or the World Health Organization (45%) would make them feel comfortable going back to the workplace. About half would be comforted by assurances from state and local governments; 42% said they would feel safer if the federal government said it was safe.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
Why Half of Retirees Now Owe Taxes on Social Security
Why Half of Retirees Now Owe Taxes on Social Security

Growing numbers of seniors are paying taxes on their Social Security benefits, but you might be able to avoid this fate.

This Is the Best Age to Buy Long-Term Care Insurance
This Is the Best Age to Buy Long-Term Care Insurance

If you wait too long to apply for coverage, you could be denied. So, when’s the sweet spot to apply?

How to Fix 6 Common Retirement Mistakes
How to Fix 6 Common Retirement Mistakes

Here’s how to strengthen your nest egg before or even during your golden years so these missteps don’t ruin your retirement.

This Type of Social Security Benefit Is Often Overlooked
This Type of Social Security Benefit Is Often Overlooked

The Social Security Administration is not helping certain people get money to which they are entitled, a report says.

How Much of My Social Security Benefit Can My Ex Take From Me?
How Much of My Social Security Benefit Can My Ex Take From Me?

A man wonders if his ex-wife will siphon away his Social Security benefit.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Whether you resell it for a big profit or add it to your own wardrobe, this type of clothing is a hidden steal.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

Am I Eligible for My Mother’s Social Security Benefit?
Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

Is This Treatable Condition Causing Your High Blood Pressure?
Is This Treatable Condition Causing Your High Blood Pressure?

Researchers say too many doctors are overlooking this potential source of hypertension.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

These Are the 3 Best Used Cars You Can Buy
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

21 Items to Cut From Your Budget That You Won’t Even Miss
21 Items to Cut From Your Budget That You Won’t Even Miss

Start off the new year by implementing these small-but-smart savings strategies. They’ll soon add up.

Taking a Multivitamin? Here’s Why You Should Reconsider
Taking a Multivitamin? Here’s Why You Should Reconsider

A new study has bad news for the millions of Americans who spend money on multivitamins.

Internet Providers Can’t Charge You for This Anymore
Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

Longer Trips to These Stores May Raise COVID-19 Risk
Longer Trips to These Stores May Raise COVID-19 Risk

An airborne-disease expert recommends leaving this type of store within a half-hour.

9 Small Expenses That Are Bleeding Your Budget Dry
9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

11 Huge Retirement Costs That Are Often Overlooked
11 Huge Retirement Costs That Are Often Overlooked

Does your retirement budget account for all of these costs?

7 Tricks to Cleaning Your Bathroom Faster
7 Tricks to Cleaning Your Bathroom Faster

These tips can get your bathroom sparkling with little time and no elbow grease.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.