Modeling 2021 economic conditions may be akin to trying to hit a satellite with a BB gun. The virus is expected to rage well into the year, even with vaccines. Some dramatic changes in consumer and worker behavior could become trends. An additional federal stimulus may be stimulative. Or not. Add to all that the entry of a new U.S. president.
Good luck hitting the satellite, and don’t put your eye out with that thing.
Michael Pakko, chief economist and state economic forecaster at the Arkansas Economic Development Institute at the University of Arkansas at Little Rock, addresses the point of unusual uncertainty with any 2021 financial analysis.
“There is a great deal more uncertainty around the forecast than usual,” he said. “The course of the virus, the success of vaccine development and distribution, and the degree of government financial support will all affect the timing of economic recovery.
“Moreover, there are interesting questions about how longer-term trends will be affected by our experience during the pandemic. Trends toward remote-working, online shopping and more at-home meals are examples of how our behavior has been affected. If these trends continue, there will be implications for the nature of economic growth going forward.”
Tourism, Manufacturing Futures
Pakko sees some hope for the state’s manufacturing sector based on “pent-up consumer demand” and the need to rebuild supply chains. He said the state’s manufacturing sector could “accelerate to meet the pace of nationwide recovery in coming months.”
Tourism may see a resurgence later in 2021 when vaccines have been broadly distributed, but some “damage” to the sector may never be repaired. In Arkansas, October tourism sector employment was an estimated 105,000, down 12.06% compared with October 2019 and down 13.1% from peak employment of 120,800 in July 2019. Pakko and Jebaraj said tourism industry recovery will depend on the pace of vaccination and the extent of relief from any federal stimulus program. Pakko estimates “2022 or beyond” for the emergence of the tourism industry recovery.
“Once enough of the population has been vaccinated, tourism will see a short-term boost from the pent up demand. But some of the long-term damage has already occurred to small businesses in this sector that have permanently closed,” Jebaraj said.
Shelnutt also notes, as did Pakko, that post-pandemic consumer trends and the business landscape may never return to the so-called normal.
“What is the COVID-19 impact on business survivorship in 2021 and 2022?” Shelnutt asked. “Will we live in an economy dominated by a smaller number of players than before, with even more significant advantages in technology deployment running ahead of corporate plans? Banks and federal regulators/lenders would also like to know. There will always be a place for small business in last-mile services to consumers, but it will be a more crowded field mixed with larger, richer, and technically advanced players.”
Pakko was the only economist interviewed to take on the challenge — although suggesting it a “hollow exercise” — of predicting GDP. He predicts the U.S. GDP will post an annual decline of 3.6% in 2020, well below the 2.3% gain in 2019 and the 2.9% gain in 2018.
Pakko estimates Arkansas’ 2020 GDP will be down 2.8% compared with 2019. He targets U.S. and Arkansas GDP at 3% in 2021 and “dropping back to a more sustainable” 2.5% in 2022.
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