A Long Road Back From the Devastation of COVID-19

New Jersey and the nation will feel COVID-19’s economic impact long after the virus is gone.

By Jim Pytell, Assistant Editor On Aug 7, 2020

The recession caused by COVID-19 and the various actions taken to help mitigate the spread of the infectious virus has been devastating to the nation’s economy, and many economists are calling it the worst economic downturn since the Great Depression. The numbers bear this out, and paint a grim picture that highlights just how grueling the road back to recovery will be. 

About eight months after the Great Recession, US employment bottomed out in February 2010, and the next 10 years (February 2010-February 2020) saw steady employment growth in both the nation and New Jersey.

“The US added 22.8 million jobs in that time period, which was the greatest decade on record,” says James Hughes, University Professor and Distinguished Professor, Dean Emeritus of the Edward J. Bloustein School of Planning and Public Policy, Rutgers University. 

In the two-month period between the end of February 2020 and April 2020, which Hughes refers to as the “Great Coronavirus-Driven Contraction,” 97% (21.8 million jobs) of the US employment gains of the preceding 10 years were wiped out. 

New Jersey alone lost 831,300 jobs in that same time period, a two-month contraction that was more than double the employment gain (+405,900 jobs) of the preceding 10-year (February 2010-February 2020) expansion. 

“That sent us back 35 years to the employment level of 1985,” Hughes says. “But this was the first deliberate recession we ever had. In order to combat the coronavirus, we deliberately shut down the economy, and when you do that, these numbers are not that surprising.” 

What Will the Recovery Look Like? 

Ryan Sweet, senior director-economic research at Moody’s Analytics, says he’s never seen anything like the COVID-19 pandemic in terms of its impact on the national economy. 

“I teach macroeconomics at West Chester University and during and after the Great Recession, I told [my students] that was a once-in-a-generation recession and that a $20-trillion economy doesn’t turn on a dime. … I was wrong,” Sweet says. “The [COVID-19] recession is the shortest, but the most severe, since the Great Depression. It’s terrifying.” 

He points out that the catalyst of past recessions determines the severity of the downturn and the strength of the subsequent recovery. 

“Because this recession wasn’t caused by a traditional catalyst, the shape of the recovery is extremely uncertain,” Sweet continues. “So far, the recovery is similar to what we see after a natural disaster and that includes a few phases. Phase one, the shutdown; phase two, the initial bounce in economic activity as the economy reopens; and phase three, which is either a lull or gradual recovery.” 

He adds that the recovery in various parts of the economy will also differ. 

“We are really in a long recovery crawl, and it is going to take many years to get back,” Hughes says. “There are going to be difficulties in absorbing the long-lasting economic damage.” 

According to Rutgers University’s Fast Track Research Notes: Coronavirus Economic Pivot: Precipitous Fall to Recovery Crawl, penned in part by Hughes, it took almost nine years from the start of the Great Recession for New Jersey to return to its pre-recession employment peak. For that recession, the state had to recapture a loss of 253,300 jobs, compared to the 831,300 jobs lost during the recent contraction. 

The same research highlights that even if New Jersey could replicate the best job growth period in its history (1982-1988) when the state gained an average of 93,000 jobs per year, it would still take nine years to recapture the COVID-19-endused job losses. 

Ultimately, it’s too early to tell what exactly the long-term recovery timeline will look like. 

“Normally, time heals all wounds with the economy, but this time is different. It depends on the virus,” Sweet says. 

The May Job Numbers 

According to the U.S. Bureau of Labor Statistics (BLS) total nonfarm wage and salary employment in New Jersey increased by 86,800 in May – a gain that represents a little more than 10% of the number of jobs lost in March and April 2020. 

At press time, New Jersey’s unemployment rate stands at 15.2%, according to BLS, down from 16.3% in April. 

New Jersey’s leisure and hospitality industry gained 35,500 jobs in May, according to BLS data, with other big gainers including, manufacturing (+18,500); trade, transportation and utilities (+16,700); and construction (+14,100). 

At the national level, the US saw a “bounce back” of jobs in May as well, adding 2.5 million jobs, according to the latest data from BLS. 

However, according to the aforementioned Rutgers study, 63.4% of the national May re-employment took place in restaurants (accommodation and food services) and retail trade, two “below-average-paying sectors that were hit hardest by the mandatory shutdowns of March and April.” 

Transformation of the Office Industry 

While industries that require face-to-face communication will have a difficult recovery, with so many people now working from home, the world of office work is being revolutionized. 

“In one month, we accelerated what would have happened over two or three years in terms of digitalization,” Hughes says. 

He points to digital meetings and conferences on platforms such as Zoom and Skype, as well as working from home, as two examples of digitalization that was already an inevitable part of our future that was pushed to the present due to COVID-19. 

“It really broadens the talent pool,” Hughes says of working from home. “In the past, the person you want to hire would have to be willing to relocate or stay, often in a very high cost area. Now the person you hire can live anywhere, and maybe you pay them a lower salary because you don’t have to compensate for ‘New York City’ prices.” 

Additionally, Hughes says that interactive and open office space plans, once thought of as the next generation of work, have now come to a grinding halt, as the densification that they relied on is an impossibility due to the current health concerns. 

In fact, he adds that larger firms based out of big office buildings have already been making inquiries to establish satellite offices, which could benefit New Jersey. 

“It’s all part of this hybrid-working model of working from home, and occasionally going to a central office,” Hughes says. 

While it’s still too early to predict all of the long-term impacts of COVID-19 on the economy, those impacts will be far-reaching. 

“This is going to change every industry,” Hughes concludes.

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