COVID-19 and The Economy
Maybe you’re reading this magazine in your classroom, with desks spaced six feet apart and your teacher wearing a mask. Maybe you’re reading it at home, and you’ll discuss it online with your teacher or classmates. The coronavirus that began spreading around the world last winter has changed all of our lives in more ways than we can count. Some of the biggest changes have been economic. This month, we take a look at what happened to the U.S. economy this year, where we stand, and what may be ahead.
Big Shift In A Short Time
The economy is how the U.S. and other countries measure their wealth and resources over time. When we talk about the economy, we often describe it as good or bad. A good economy is one in which businesses are making money, people are finding jobs, consumers are comfortable spending money, and the gross domestic product, or GDP , is going up. A bad economy is the opposite. Businesses are closing, people are losing jobs and not spending as much, and the GDP is falling.
In 2019, before anyone had heard of COVID-19, our country’s GDP grew by 2.3%. That was pretty good. But during the first three months (or what economists call the first quarter) of 2020, it fell by 5%. That was pretty bad. Then, during the second quarter, it fell by 32.9%. That was really bad. A recession happens when a country’s GDP declines for two quarters in a row.
Loss Of Jobs And Businesses
Why did the U.S. economy fall so far so fast? On March 11, the World Health Organization declared COVID-19 a pandemic . Activities that took people out of their homes began to shut down.
Two days later, 16 states had closed schools, with the rest soon to follow. And by the end of March, 26 states had issued stay-at-home orders. Only essential businesses, such as groceries, drugstores, gas stations, and hospitals, were allowed to stay open. Most others had to close.
Just as many students were eventually able to attend school remotely, or from a distance, many workers were able to do their jobs from home. They could communicate with coworkers and customers online.
But others, including workers in restaurants, shops, and hair salons, could not. By late May, more than 40 million people in the country lost their jobs. Unemployment hit Black and Hispanic workers hardest. According to research from McKinsey & Company, about a quarter of the small businesses in the U.S. could close for good because of the effects of the pandemic.
Government Steps In
On March 27, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress and signed by President Trump. It would cost the country more than $2 trillion.
Money from the CARES Act provided help in a number of different areas. About a quarter of it went to big corporations. Another quarter of the money went to individuals. Checks called stimulus payments were sent to adults who earned less than $99,000 a year; they received up to $1,200, plus an additional $500 for each child under age 17. Some mortgage and student loan payments were paused. Landlords weren’t allowed to evict renters who were unable to pay their rent.
Money also went small businesses, to help them cover rent and pay their employees. State and local governments received money, too. For example, unemployment payments, which are typically provided by the state, were supplemented with money from the federal government. The rest of the money from the CARES Act was allotted for public services, such as education and public health.
The Road To Recovery
So where does the economy go from here? In May, June, and July, the country restored millions of jobs that were lost earlier in the year. Many of those were in businesses such as restaurants and hotels, which had fully or partially reopened.
Consumers started spending more in May and June, as well. They bought clothes and shoes, dined out, and rescheduled dental visits and checkups that they’d postponed. But in July, as cases of COVID-19 continued to rise, consumer confidence—a monthly survey that measures how Americans feel about the economy and predicts their spending—dropped again.
In August, as this story was being written, Congress and the president were negotiating another act, similar to CARES, to help struggling Americans. The results of those negotiations are not yet clear. What is clearer than ever, however, is that the health of the country and the health of the economy go hand in hand.
—By Jean Chatzky
Extra! Click here to read a related article from TIME for Kids.