Vital Signs

The American economy is showing conflicting symptoms. The pandemic sent the U.S. into recession in March 2020, but growth returned by the fall, with the spring feeling to many like the beginning of a full economic reopening. Covid-19’s Delta variant upended that. GDP growth topped 6 percent in the first and second quarters of the year, but economists had predicted stronger results—and forecasts for the third quarter shrank to about 3 percent. Consumers spent more on retail goods in September than expected, but rising inflation has become a widespread concern in recent months. The job market is similarly difficult to read, as workers’ wages are up, but there are still 5 million fewer jobs today than before the pandemic, in February 2020. How is the U.S. economy actually doing?

Betsey Stevenson, a professor of economics at the University of Michigan and a co-host of the podcast Think Like an Economist, was on President Barack Obama’s Council of Economic Advisers from 2013 to 2015, after serving as the chief economist at the Labor Department from 2010 to 2011. In Stevenson’s view, statistical indicators are just a reflection of all of a population’s economic actions, so the many stops and starts of American businesses, workers, and consumers are producing mixed data. The numbers show that GDP has fully recovered from last year’s steep decline, but Stevenson says the challenges with inflation and jobs show how the pandemic has changed what people want to buy and where they want to work. The good news, for Stevenson, is that the problems in the supply chain—and the inflation that they cause—are likely temporary, as production and shipping disruptions subside along with cases of Covid-19. Another positive outcome, she says, is that workers have gained more bargaining power over labor conditions, as the virus transforms where and how Americans work.

Michael Bluhm: Is the U.S. economy recovering or stumbling?

Betsey Stevenson: It is in a state of transition, trying to find what post-pandemic normal is going to be. The economy is not any different from us. We’re all trying to figure out what post-pandemic normal is going to be.

The economy is just the collective actions of everyone, so if we’re wrestling with what our post-pandemic lives are going to be, then it’s not surprising that the economy is also wrestling with what post-pandemic life is going to be.

There are good things and bad things. The quick reaction by Congress in the early days of the pandemic meant that the U.S. didn’t have the wholesale collapse of the economy that many feared. Not only would it have meant extraordinary hardship for tens of millions of people, but we would have been building back from a much lower place, with a lot of jobs permanently destroyed. Instead, a lot of businesses put employees on pause and then brought them back, because of everything that Congress and President Trump and President Biden did.

The percentage of Americans employed fell off a cliff in the early pandemic. We’re now 75 percent of the way back up that cliff. There is a glass half full: More than 75 percent of the way sounds great. Twenty-five percent of the way to go sounds like a big challenge—that’s the glass half empty.

In August and September, the Delta variant put a chill on consumers and workers. People’s comfort level with indoor dining, airline travel, indoor entertainment, and concerts peaked in early to mid-July and fell the rest of the summer. We haven’t seen it come back up much.

The other problem is that the pandemic is affecting goods and services around the world, causing a lot of clogs in the U.S. supply chain. Our supply chain is efficient and works with very little waste and inefficiency. The problem is, if you have a system with very little inefficiency and waste, once you have a clog, the whole thing can come tumbling down.

The dream of the V-shaped recovery was a dream where Americans do exactly the same thing that we were doing before the pandemic. But that’s not reality. Our habits changed. The bar for me to get on a plane has permanently risen. Most Americans got in their car and commuted five days a week. Our preferences and habits have changed in a way that’s shaping how we shop and what we buy, and how and where we live. Those shifts in consumer demand are translating to shifts in jobs—but that takes time.

The economy today is not good or bad. It’s in a transition, and it’s struggling with challenges in the United States and around the world.

The economy is just the collective actions of everyone, so if we’re wrestling with what our post-pandemic lives are going to be, then it’s not surprising that the economy is also wrestling with what post-pandemic life is going to be.

Bluhm: GDP data for the U.S. show robust growth: GDP was up 6.7 percent in the second quarter of 2021, after 6.3 percent in the first quarter. And yet some economists were disappointed by these numbers, because they had been anticipating more growth. When you look at the GDP data, what do you see?

Stevenson: Real GDP in the U.S. has fully recovered to its pre-pandemic level. We saw that very big decline in the second quarter of 2020. This was a very short recession. It’s very hard for non-economists to understand, because the pain was definitely longer than just the second quarter of 2020. A lot of Americans think we’re in a recession.