Although last year’s pandemic-driven recession was brief, the economy is still dealing with numerous disruptions related to COVID-19, according to Fifth Third Bank Chief Investment Strategist Jeff Korzenik.
“We’ve done significant structural damage to the economy,” Korzenik said Wednesday during IBJ’s 2022 Economic Forecast event at the Marriott Indianapolis Downtown.
According to the National Bureau of Economic Research, the official recession lasted for only two months. After hitting its peak in February 2020, the U.S. economy declined until April of that year, after which the gross domestic product again began to climb.
But the pandemic has led to major disruptions in the labor market, as well as in the office real estate market and in the supply chain. Those issues are still affecting the economy today, Korzenik said. (See video below)
“The pandemic has absolutely made the labor shortage worse,” Korzenik said.
Because consumer spending habits changed so much during the pandemic, a lot of the jobs that were lost over the past 20 months aren’t necessarily coming back—and those who are looking for work aren’t necessarily equipped to easily move into the jobs that are available.
Economists refer to the mismatch between job-seekers and available jobs as reallocation friction. Various factors can create this friction—a gap between a job-seeker’s skills and the skills needed for available jobs, for instance, or the geographic distance between available jobs and the workers who might fill them.
Other factors worsening the labor shortage, Korzenik said, include the childcare issues that are still keeping some women out of the workplace, and the fact that the pandemic pushed many older workers to retire from their jobs earlier than anticipated.
Some relief is expected now that augmented unemployment benefits—a pandemic relief measure—have expired, Korzenik said. He cited economic data showing that recent employment growth was eight times higher in the states that ended the augmented benefits in June, as compared to the half of states that ended them in September.
Korzenik urged employers to take a fresh look at their hiring practices, to make sure they’re not inadvertently screening out qualified candidates. A company’s screening software, for instance, might weed out applications from people who have been out of work for more than six months. That might mean the company is missing out on some good candidates who have been out of work for longer than that because of pandemic-related disruptions.
Korzenic also encouraged companies to consider another pool of candidates who have traditionally been excluded from many job opportunities: the 19 million Americans who have felony convictions on their records.
“We have an opportunity in the business world to find talent where we’ve overlooked it before,” he said. “And it’s a business case—not charity.”
Another looming challenge is dealing with the spate of vacancies in downtown office real estate markets.
In cities across the country, many downtown offices emptied of workers as employees shifted to remote work during the pandemic. Those workers have not been quick to return to the office.
According to data from Kastle Systems, a provider of key-card access control systems, offices in the nation’s largest cities were only about 50% occupied at most as of late October.
Korzenik said he believes it’s “far too glib” to assume that office space could easily be converted into other uses such as apartments. “Let’s not gloss over the fact that we’re going to take hits,” he said.
On a positive note, Korzenik said ongoing supply chain disruptions could provide an opportunity for Indiana. He referred to the “reshoring” trend in which, over the past decade or so, companies have opted to bring some of their manufacturing back to the U.S. for various reasons.
The reshoring trend significantly accelerated in 2012, likely sparked by twin catastrophes in Asia the previous year that disrupted the automotive supply chain: the earthquake and tsunami in Japan, and flooding in Thailand.
Now, Korzenik said, companies are showing renewed interest in moving manufacturing back to the U.S. “We view this year, with its horrible supply-chain disruptions, as another catalyst,” he said.
The geographies that stand to benefit most from reshoring, Korzenik said, are those that already have a strong manufacturing infrastructure and a manufacturing-ready workforce.
“I think I just defined the economy of Indiana,” Korzenik said. “I think this bodes really well for Indiana’s growth going forward.”
Manufacturing makes up about 26% of Indiana’s economy, far above the national average of 11%.