The Effects of COVID-19 on the U.S. Economy

The global pandemic has changed our lives since March 2020. Besides a public health crisis, it has changed all aspects of our lives including work-life balance, education, and the economy. The US economy has been damaged like any other economy in the world. Most 

American states made nonessential companies and businesses close in an attempt to stop the spread of COVID-19. Thousands of employees were furloughed and temporarily laid off. As a result, this pandemic has created one of the most devastating economic recessions in 2020 as the economy shrank by 31.4%. Here is how COVID-19 has affected the U.S. economy.

Economic Consequences of the Pandemic

We have all seen the continuing consequences of COVID-19 in the USA and worldwide. The personal finances of people have struggled the most as most workers weren’t prepared to withstand this new reality. Apart from health issues, the economy has been seriously affected in the USA. Many American consumers rely on the cash advance apps and even have multiple cards to help them cover immediate cash needs and finance the necessary purchases as they don’t have enough savings.

As millions of people have been laid off and even lost their jobs permanently, the borders between almost all countries have been closed for a long time. International trade has suffered immensely as not every industry could easily adapt. Only the luckiest workers had a chance to switch to working remotely and more and more citizens kept on applying for different forms of credit in an effort to make ends meet.

Although the USA used to always remain independent, the current pandemic has affected its economy. As citizens and residents had less money to spend, fewer goods appeared in stores. It means fewer companies and enterprises had profit and could pay their workers. This chain inevitably leads to a frustrating slowdown in our economy.

With over 32% Americans being unemployed in 2020, they have to seek alternative income streams to boost their earning potential. Many consumers considered steady employment as the major source of their income until they lost it. As retirement funds and health insurance are connected with our employment, it’s necessary to think of alternative ways to remain financially afloat during these challenging times.

Record Unemployment

Over 10 million American consumers filed for unemployment insurance in 2020. Many companies and small ventures shut down due to COVID-19 and not all of them had a chance to get back to normal. The unemployment rate amounted to 14.8% in April 2020 which happened to be the highest peak since the Great Depression. 

Only at the end of 2020 small companies started adapting to changes and learned how to operate remotely, so the unemployment rate slowly lowered to 6%. The recent figures show that the unemployment rate was 5.4% in August 2021.

The Work-From-Home Economy

The American economy had to become a work-from-home one very fast. The survey by Stanford University revealed the fact that 42 percent of the U.S. labor force worked from home full-time when the lockdown started. Another 26 percent worked in healthcare, grocery stores, as well as auto repair facilities. The other 33 percent didn’t work due to the impact of the layoffs and lockdown.

Those who could keep on working remotely, maintained economic activity but also experienced some issues with distant work. Another research showed that over half of these remote workers had to utilize shared rooms or bedrooms for work. One-third of respondents claimed they couldn’t take part in video conference calls because of poor internet connections. As of 2021, just 14.4% of employees continued working remotely.

Business Closures

Around 43 percent of ventures had to close in April 2020. All of these closures happened because of the lockdown, as the Proceedings of the National Academy of Sciences of the USA (PNAS) claimed. The worst impact was on personal services, restaurants, entertainment, and retail. 

Those industries and businesses that didn’t count on on-site locations did better, such as real estate and professional services. Over 57 percent of small enterprises and ventures managed to reopen by March 2021 while the lockdown eased.

Interest Rates

It quickly became obvious that COVID-19 would have a long-lasting effect on the US economy, so the Federal Reserve wanted to ensure businesses and banks had enough funds to keep on lending. It decreased the target range for the fed funds rate by a full point in March 2020. The previous range was from 1.00% to 1.25% while the new range was between 0% and 0.25%. More than that, the Federal Reserve lowered the reserve requirement to zero.

Hence, the banking institutions could lend their deposits without keeping any in reserve. People could benefit from lower interest rates at conventional banks. For instance, a 30-year mortgage rate decreased to 2.71% in December 2020. This fixed rate for a mortgage was the lowest in 50 years. There was an increase to 3.18% in April 2021, though.

The Oil Price Collapse

The oil price was about $64 per barrel in January 2020, but it collapsed later that year due to the pandemic. Global demand for oil was lowered dramatically as governments limited travel and companies closed. In April 2020, the oil prices descended drastically to $19 per barrel. Later, these prices had an opportunity to recover and increase, but they couldn’t reach $64 until March 2021.

The Bottom Line

As COVID-19 has captured the world, it has also affected the US economy in many ways. Many people were made to reevaluate their lives and financial habits as thousands of them were left with nothing. Those who didn’t have sufficient savings would have to rely on lending options. Those who couldn’t withstand the new reality and lost employment had more financial struggles. 

Though the international trade suffered immensely, American services and brands had a small chance to capture the market. As people had fewer funds to spend, there were fewer goods and less profit for enterprises. A serious slowdown in the American economy is what we all had to face due to the global pandemic.