The recession triggered by COVID-19 caused unemployment to soar and ended a decade-long economic expansion. And as the curtain rises on 2021, it’s unclear what we’ll see on the stage, according to a report released Wednesday.
The newly-released annual economic report to the governor’s office was in some ways a confirmation of what was already known from statistics flooding in since March. Unemployment exploded as shutdowns idled parts of the consumer economy. And after businesses re-opened, consumers were wary to enter restaurants and stores in a pre-pandemic fashion. The recovery will likely trace a lurching path, as consumers and businesses tread carefully until a wide swath of Tennesseans are vaccinated.
“The recovery thus far has been incredibly uneven,” said economist Larry Kessler of the Boyd Center for Business and Economic Research. “There are a number of businesses still struggling as the virus dictates how consumers spend their money. Employment levels among low-wage workers are still severely depressed. [And] families are still dealing with food insecurity and struggling to deal with their finances.”
Kessler, lead author of the annual report, said the recession hit its lowest point in April and the state’s economy has slowly been climbing out of the valley ever since. Tennessee’s GDP – the final value of goods and services produced in the state – fell 40 percent from the first to the second quarter this year, according to data from the federal Bureau of Economic Analysis. Kessler expects Tennessee’s economy will improve enough by the end of this year to show a 3.2 percent shrink. Modest economic growth is projected for 2021, and the state’s GDP could rise above pre-pandemic levels in 2022.
The report’s projections are based in part on two key assumptions: That vaccines will be widely available to the general public by next summer, and that Tennesseans will actually get vaccinated in numbers sufficient to resume pre-pandemic social and economic activity. But if those don’t happen, Kessler said projections for 2021 may end up being too optimistic.
“Right now, there’s so much uncertainty, and that makes forecasting hard,” Kessler said. “We also have to think about the trajectory of the virus, and government and consumer response to the virus.”
The recession dramatically affected labor and business. In a single-month period from March to April, nearly 400,000 Tennesseans lost their jobs, according to the report. The unemployment rate rose from three percent in January to more than 15 percent in April. Participation in the labor force dropped to the lowest levels seen since 1973.
Broad figures measuring the strength of employment and the labor market are projected to improve in the year ahead, but select pieces of the economy will take longer to reach pre-pandemic levels.
“Some segments of the economy will show scarring well past 2023,” the report said. “Employment in the state’s leisure and hospitality sector, one of the hardest hit by the pandemic, will not fully recover until 2024.”
State sales tax revenues haven’t been torpedoed by the recession, surprising some economists. That’s because consumers didn’t stop shopping; they simply moved their habits online, Kessler said.
Personal income in Tennessee increased slightly in 2020, thanks to federal stimulus money that arrived mid-year and extensions for unemployment benefits. The future of further economic stimulus is murky, and the jobless benefit extensions are set to expire at the end of this month.
About 40 percent of people unemployed nationally were out of work for at least half the year, Kessler added, suggesting that many people and families have exhausted personal savings and unemployment benefits, or are close to doing so.
Competing bills announced on Capitol Hill this week would extend benefits for another four months, but the prognosis for a compromise measure before year’s end is unclear. Despite some positive signs as 2020 closes, Kessler said the political uncertainty and questions about how consumers will respond to surging virus cases make it difficult to say with certainty what the opening months of 2021 will look like.