Ten weeks into the worst economic upheaval since the 1930s, the dust is settling but the path forward remains precarious: Even as people start returning to work, the loss of some 46 million jobs will leave lasting scars on the economy in Massachusetts and across the country.
The future of entire industries is in question, unemployment is running as high as 20 percent, and state governments are in the red and facing painful cuts to jobs and essential services. While the peak of the coronavirus crisis may be behind Massachusetts, New York, and other hard-hit regions, fears of a resurgence have led to a cautious approach to reopening.
“We have to assume it’s going to take years to get these jobs back,” said Megan Greene, an economist and a senior fellow at Harvard’s Kennedy School.
Greene expects job growth to resume in June, as states extend their initial steps to reopen and businesses bring back workers in meaningful numbers.
The manufacturing and construction industries, which remained largely open during the shutdown, will lead the way, economists said, along with technology, health care, and professional services — sectors that are the backbone of the state’s highly educated and well-paid workforce. These industries combined account for nearly half of all Massachusetts jobs.
The battered travel, restaurant, retail, and entertainment sectors will recover much more slowly because they are dependent on people feeling it’s safe to mingle with others again. In a blow to Boston’s tourist economy, Mayor Martin J. Walsh said Thursday that this year’s Boston Marathon, already moved to September from April, has been canceled.
“Jobs will move around,” said Doug Butler, director of research at Rockland Trust.
After an initial burst, the pace of rehiring will hinge on consumers, whose spending powers two-thirds of the economy, and the course of the pandemic, which will play an outsize role in influencing their confidence levels. A second wave of COVID-19 infections — which public health experts have warned is likely — would spook Americans, trigger a pullback in spending, and leave swaths of the economy moribund.
Even now, the layoffs continue, albeit at a much slower rate than in the earliest weeks of the rolling shutdowns across the country.
More than 3.3 million Americans filed new claims for unemployment pay last week, including gig workers and independent contractors who became eligible for benefits under a new pandemic relief program, the Labor Department said Thursday. While that was down from 3.7 million claims in the previous week, the total since mid-March now stands at 46 million, or 28 percent of the prepandemic workforce.
In Massachusetts, 185,000 people signed up for jobless benefits last week, pushing the total over the past 10 weeks to 1.4 million. That is equal to 38 percent of the labor force before the virus’s outbreak.
Other economic readings highlight the strong headwinds facing the economy.
The University of Michigan’s consumer sentiment index for May was near an eight-year low. Consumer spending plunged 7.5 percent in March, the most ever in records going back to 1959. Only about half of Americans say they are ready to resume attending movies, concerts, or sporting events, using public transportation, or going to bars and restaurants, according to an Associated Press-NORC Center for Public Affairs Research poll earlier this month.
And the May “beige book" report by the Federal Reserve, released Wednesday, found that the businesses it surveyed remained pessimistic about the potential pace of recovery.
“Contacts cited challenges in bringing employees back to work, including workers’ health concerns, limited access to child care, and generous unemployment insurance benefits,” the Fed reported.
There are pockets of optimism, especially among stock market investors. The Standard & Poor’s 500 index has rallied strongly since tumbling 34 percent from its February record. As of Thursday, the benchmark for large US stocks was down just 6 percent for the year.
Investors appear to be looking past the second quarter, which ends June 30 and is forecast to record a decline in gross domestic product of perhaps 30 percent or more on an annualized basis. There are signs that the economy is stirring — airline travel and restaurant bookings are climbing, though from very low levels — and more rescue measures may be coming from Congress and the White House.
Optimists also point to a silver lining in the Labor Department’s April jobs report: Nearly 9 out of 10 workers who lost their job during the month said they viewed their layoffs as temporary. Over the past five years, those who expected a quick return to work averaged 25 percent.
Trying to predict when growth will pick up while COVID-19 remains a threat is especially difficult, as the economy is at risk of being caught in a vicious cycle: Businesses will wait to see a pickup in retail spending and growth before they commit to hiring; consumers, meanwhile, are waiting to get their jobs back before resuming their spending.
“Employers don’t add workers until economic growth warrants it,” said Don Klepper-Smith, chief economist at DataCore Partners in New Haven. “I don’t see robust economic growth anytime soon. … The potential is there for unemployment to remain in double digits for the next year.”
The job market faces other threats.
A looming budget crisis threatens the finances of state and local governments, an important employer in most states, including Massachusetts, where the public sector accounts for 12 percent of all jobs. The state’s tax revenues for the fiscal year beginning in July are projected to fall by $6 billion, or 19 percent, compared with estimates made in January, according to the Massachusetts Taxpayers Foundation.
Government payrolls in the state have been relatively unscathed during the crisis, but that could change as the Baker administration scrambles to close what will likely be a huge budget deficit. Cuts to aid for cities and towns would squeeze spending on police, fire fighters, teachers, and others.
After the recessions of 2002 and 2009, it took three years for state tax revenues to recover to prerecession levels, the taxpayers foundation said in a report released Thursday.
“It is reasonable to assume that it will take at least as long to recover as the two previous recessions,” the report said.
Moreover, with the crisis forcing major changes to the business models of key sectors — higher education, retail, hospitality, and entertainment — “it could take considerably longer for the state to recoup tax revenues lost from this pandemic," the group said.
Earlier this month, the Democratic-controlled House passed a $3 trillion stimulus package that included $1 trillion in aid for state and local governments. After initially calling the measure dead on arrival, Senate majority leader Mitch McConnell in recent days has said the upper chamber may act in coming weeks.
Even with federal aid, the Baker administration may need to tap its $3.5 billion rainy day fund and raise taxes on individuals and businesses to balance the budget, according to professors Alan Clayton-Matthews and Alicia Sasser Modestino of Northeastern University and Michael Goodman of the University of Massachusetts Dartmouth.
“Given the existential threat confronting the residents, cities and towns, businesses, and major institutions” of the state, such moves are necessary, they wrote in an op-ed piece in the Globe.
Meanwhile, the pandemic has pushed several high-profile companies into bankruptcy protection, including rental car giant Hertz and retailers J.Crew and JCPenney. But economists say an expected surge of failures among small companies is more worrisome, since those businesses tend to liquidate rather than reorganize.
The government’s Paycheck Protection Program has issued more than $500 billion in loans, mostly to small employers. The loans, which can be converted into grants if the recipients keep or rehire most of their workers, were designed to carry the borrower for about eight weeks. That cash will be running out soon, and economists say many small businesses will not be able to hang on much longer.
“We know airlines can fly planes when they are bankrupt, and Hertz can rent cars,” said Greene, the Harvard fellow. “When smaller businesses run out of cash, they just shut down.”