The Impact of Covid-19 Pandemic on US Economy

Covid-19 Pandemic and Economy
Name
Institution Affiliation
Date
The COVID-19 (Coronavirus) pandemic had an impact on the whole world, and one of the most significant effects was mobility limitations and social isolation. The United States and other nations have loosened most of these prohibitions, but the epidemic has a severe economic impact. The travel, entertainment, and tourist sectors, as well as the hotel and restaurant industries, were all badly impacted. While improvements have occurred, many more industries remain below their pre-COVID-19 levels, which helps to explain the greater unemployment rate. In addition, measures taken to combat COVID-19 resulted in lower consumer spending, which is the largest component of aggregate demand and US GDP, slowing the country’s economic potential. People were less likely to visit companies, and small firms were disproportionately harmed at a period when more people needed government help. The impact of the COVID-19 epidemic on the US economy is the subject of this article.
Background Information
Consumer demand fell, which directly influenced the US economy since companies and sectors experienced decreased sales and income, making it more difficult to retain personnel. As a result, global economic growth and expansion occurred at the end of 2019. However, COVID-19 interrupted economic activity. In any event, the US economy hasn’t been running at full speed since then, with businesses cutting down on expenditure, including investments, to save expenses. The multiplier effect is a concept in macroeconomic theory that describes how an increase in one variable (X) causes a fluctuation in another variable (y), resulting in a larger increase in the latter. One of these multipliers is the consumption multiplier, in which greater consumer spending leads to a rise in demand, resulting in an equivalent increase in output and revenue. On the other hand, reduced expenditure has a detrimental impact on the growth of many sectors and businesses.
Household savings grew partially as a result of enforced limitations and an increase in fear of infections during a period of economic instability. People raise their savings without necessarily investing as a precautionary step to shield themselves against the uncertainties, which impacts economic potential. Despite government initiatives such as the Paycheck Protection Program (PPP) to keep businesses viable and individuals employed, household discretionary income has fallen. The impact of the COVID-19 epidemic on consumer spending has received increasing attention, although personal savings have also increased, reaching as high as 34% in April 2020 (Bauer et al., 2020). A dramatic decrease in spending, far greater than the drop in income, has resulted in a rise in the savings rate, owing mostly to precautionary rather than forced saving.
The COVID-19 epidemic has caused an unprecedented economic disruption in the United States, affecting both businesses and households. The effects of a downturn in the economy on households as a whole appear to be mild. Nonetheless, disaggregated levels of research have revealed that the pandemic has disproportionately affected low-income, low-wage employees, and temporary workers. Compared to 2.3 percent in 2019 and 2.9 percent in 2018, the Real Gross Domestic Product (GDP) growth rate in 2020 was -3.4 percent (US FRED, 2021). For households at all economic levels, there has been a significant shift in consumption and expenditure. It’s more likely that the income drop was concentrated among low-income households, whereas savings increased among medium and high-income households. Low-skilled and low-paying employment account for a substantial portion of the jobs affected by the epidemic.
Businesses in the United States reported the biggest loss in sales and profit since the global financial crisis, with more corporations reporting lower earnings even after cutting costs. In addition, dividend income fell as net interest payments on debt fell, resulting in a significant drop in earnings after taxes and dividends, even after lowering company investments. Indebtedness was one of the primary worries for businesses, focusing on preserving liquidity not adequate to safeguard enterprises from rising uncertainty. If firms take longer to recover to pre-crisis levels, an increase in nominal corporate debt might have long-term negative consequences. Furthermore, large debt ratios raise the danger of firms struggling to stay afloat unless debt restructuring is undertaken.
Unemployment and economic growth are inextricably connected. Between 2019 and 2020, there was a significant drop in consumer spending and a rise in unemployment as numerous firms closed. The COVID-19’s economic consequences were felt in various industries and activities, and they continue to impact economic growth prospects. The unemployment rate in the United States fell from 9.6% in 2010 to 3.7 percent in 2019 before rising to 8.1 percent in 2020 (US FRED, 2021). Workers will find it increasingly difficult to obtain well-paying positions now and in the coming years as a result of the combined effect of a sharp decline in GDP, high unemployment, and firm downsizing or closure. Global industrial activity has improved, although just a few industries, such as manufacturing, have seen positive production increases. The hotel, restaurant, tourist, travel, and restaurant sectors, on the other hand, move at a considerably slower pace.
The US government established the PPP assistance program, which is aimed at companies, as well as stimulus programs for people and households, although these programs are limited in duration. As millions of people have lost their jobs and businesses are struggling to stay afloat, the government has gotten increasingly active in boosting the economy. Despite this, the government has failed to implement significant changes that would benefit the US economy in the long run. As a result, economic activity has returned to pre-pandemic levels in several businesses and sectors. As a result, people are becoming more cautious, even though retail sales, one of the key drivers to consumer spending, are increasing. Moreover, growing inflation thwarts the government’s efforts to rebuild the economy, disproportiona...