Nancy Solomon: You're listening to The Takeaway. I'm Nancy Solomon in for Tanzina Vega. There's no doubt that the COVID-19 pandemic has been devastating for the US economy, but still, there's reason to be optimistic. The unemployment rate is steadily dropping and the stock markets have been on the rise in recent weeks as the country is ramped up its aggressive vaccination campaign. What will this mean for the US economy down the line? Here to discuss that and more is Neil Irwin, Senior Economics Correspondent for The NewYork Times. Neil, thanks for joining us.
Neil Irwin: Hi, Nancy. Thank you.
Nancy Solomon: Remind us overall, what economic impact the pandemic has had over this past year-plus?
Neil Irwin: Well, it really was something that we've never seen before in anyone's lifetime. The entire economy was being shut down voluntarily because we needed to for public health reasons back last spring. You had massive industries, going from millions of employees to practically zero overnight. That's just a trauma that the economy hasn't experienced before. Normally, recessions are a slow-moving process. It really was a traumatic experience. I will say that the US government stepped in with a lot of different actions to try and cushion that damage so people have come out of this less damaged than they would have been if they're not been trillions of dollars of action by the government.
Nancy Solomon: You're optimistic about where the economy is going, so tell us about that.
Neil Irwin: We are poised right now and we're seeing right now just a turbocharge out of the pandemic induced recession. Second quarter, the quarter that we're in right now, is probably going to have GDP, not just higher than it was before the pandemic but higher than the pre-pandemic trend, meaning better than we were on track to do back in the end of 2019, for example. We are bursting out of this recession in a way that we haven't from recent recessions. That's good news, but I think there's a broader argument that we are poised to see some real changing in some of the longer-term factors that have held the economy back and resulted in the 2000s being a really not great period for overall economic growth.
Nancy Solomon: Economists say, "A rising tide raises all boats or something like that." I might have that off a little bit, but that hasn't always been true. Are things going to spread out more or are people at the bottom still going to be hurting?
Neil Irwin: Well, there are definitely people who are still hurting and I don't want to diminish that one bit. There are millions of people who are unemployed, either because they lost their jobs and their former employer went away or staying home for health reasons, or because they don't want to get exposure to the virus. There's still a lot of pain out there, absolutely, but we are seeing reason to think that workers are going to have the upper hand as this year progresses. You'll see a lot of anecdotal reports out there of all kinds of businesses, especially restaurants, all kinds of businesses, struggling to find workers.
What that means if you're a worker is employers want you and they're willing to pay more, we're seeing more signing bonuses, rate of pay increases. I think there's a good chance that by the end of this year, we have not only low unemployment but higher wages at the lower end of the scale than we saw before the pandemic. That seems to be how things are lining up.
Add to the stuff that's happened on the stimulus checks and other direct assistance that's happened. American household balance sheets are in very good shape right now. There's pent up savings from over the last year. I think there's every reason to think that in the aggregate, again, not trying to diminish people who are in a difficult situation right now, but on average, things should be very good as we head into 2022.
Nancy Solomon: Pent-up savings but also significant pent-up demand, I would expect after this year.
Neil Irwin: Spending on things like durable goods is the term. Anything heavy, anything that's supposed to last has just soared, so people are buying exercise equipment. They're putting in a new deck. In the first quarter, durable good spinning rose a 41% annual rate. That is remarkable. Now, that's come at the cost of services. People are taking fewer trips, fewer plane rides, fewer hotel stays, fewer restaurant meals. What we would expect to see is for that to rebalance as time goes on but for now, that's the dynamic.
Nancy Solomon: You wrote in a recent piece in The Times, you cited 17 trends that contribute to your economic optimism from the pace of innovation to battery technology to baby boomers retiring from the workforce. Tell us a few on your list that you think are the most significant.
Neil Irwin: My career, I started as an economics reporter 21 years ago at the turn of the century and it's been a really long slog and not a good slog in those 20 years. One mild recession, one financial crisis, a slow recovery after the financial crisis, then the pandemic. I'm actually legitimately optimistic right now that some very good things could happen in the 2020s.
One of those is, as you say demographic. I think we're seeing the millennial generation coming into their prime earning years, their prime spending years. This is the age at which Millennials are going to be buying houses, buying cars, raising families. That's the time period, if you look at the lifecycle of people spending, the age, the millennials are hitting their late 30s 40s are absolutely the age where you see most economic activity. Other things, you see some real evidence that innovation is starting to click in.
This has actually been a very bad last 15, 20 years for productivity, meaning the ability of the economy to make more and be more productive with the same resources. I think there's a lot of innovations that people have been working on for years that may be finally starting to pay off around battery technologies and say, electric cars, driverless cars, potentially, a lot of artificial intelligence work that's been happening under the radar for years and years might start to pay off. That's just a couple of the reasons that I think we might be in a different equilibrium than what we were in throughout the first two decades of this century.
Nancy Solomon: Let's dig in a little bit on that though, so for instance, the battery technology and driverless cars, how does that end up creating growth in the economy?
Neil Irwin: Well, think about it this way. Let's say they are able to get trucking to work very effectively with either driverless or semi-driverless trucks, there's a couple million truck drivers in the country, suddenly they can go to work doing something else. I've often looked at these kinds of threats as threats to jobs, and in a way, they are, but ultimately, if you have an economy that's booming, where there's adequate demand for goods and services, there's plenty of demand for people to shift to other forms of work.
If we can produce the same things with fewer people doing this job or that job, that's actually a good thing. We're seeing that right now with restaurants. Restaurants are having a hard time hiring people for a lot of reasons. If they're finding ways to be more productive, find a way to automate more processes, to serve the same number of people with fewer staff, I know we think of it in terms of jobs, but that's actually a good thing in terms of the overall productive capacity of the economy.
In periods when we think of as boom times, like the decades after World War II, productivity was a lot higher than it is now and you had a lot more of this innovation where certain jobs would go away but there were plenty of other jobs for people to step into.
Nancy Solomon: One of the items on your list that I found pretty exciting was about wage growth, and the fact that the impacts of globalization have been so rough on working people's wages, and that we might see this begin to-- the impact of globalization will start to diminish now, tell us about that.
Neil Irwin: I think one central dynamic of the last 20 years, the '90s, 2000s, 2010s has been a global labor glut. Lots of additional people have come into the global labor force in ways that did drag down the wages of a lot of labor working-class people in advanced countries. China entered the world economy in a way that hadn't been before, had lots of trade agreements with various countries.
You had a technological revolution that allowed outsourcing of a lot of service work to countries with lower wages, the call centers in India or the Philippines, things like that. Those, we can debate all day long what the advantages and disadvantages that phase of globalization had, but the reality was if you're a person with a high school degree in Kansas, you found yourself in competition for jobs and for work with people all over the world, many of whom were used to having lower wages than you're used to, and that's part of the story of the last 20, 30 years. I think that's pivoting.
China's wages are rising. China's demographics are not as favorable. More importantly, there's not another China out there about to join the world economy, that's the biggest country on earth and population. There's no other China. It's not like you can invent outsourcing of call centers again. Also, demographics in the US are changing, the size of the prime working-age people, we're seeing the baby boomer generation starting to retire. As they retire, that's creating plenty of demand for goods and services for those who'll get those social security checks, but it's not creating the same labor force.
I think if you're an American worker, in the 2020s, you are going to be in demand and it's just a question of how do we handle things so that wages are rising as a result of that phenomenon?
Nancy Solomon: We're just about out of time, but what do you think about all of these stimulus plans and everything that Joe Biden is proposing, how is that going to affect things going down the road?
Neil Irwin: I think it's a sea change in American fiscal policy and monetary policy. In the 2010s, we were so reliant on the Federal Reserve and quantitative easing, all these things the Fed did to try and keep the economy and recovery going. The elected leadership, Biden administration and Congress have really taken the lead now and are now driving the train on economic policy. That's good news in the sense that fiscal policy can be better targeted, it's better for reducing inequality than monetary policy.
The fact that there are even people out there talking about the risk of overheating, that they might have done too much that there could be inflation or negative effects, well, we spent the last 10 years complaining that inflation is too low and so in a way, it's trying to get a regime change and what American economic policy looks like in ways that can reverse and undo what's been ailing us for a long time.
Nancy Solomon: Well, you have me feeling more optimistic. Neil Irwin is a senior economics correspondent for The New York Times. Thanks so much for being here, Neil.
New York Public Radio transcripts are created on a rush deadline, often by contractors. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of New York Public Radio’s programming is the audio record.