Pile of moneyAfter one of the deepest recessions in history, the U.S. economy still has roughly 10 million fewer jobs than before the COVID-19 pandemic began. While some say the economy is improving faster than expected and has seen significant growth in recent months, it could be some time before the U.S. returns to pre-pandemic highs. What will drive the economy back into recovery? And can it happen before 2022? Sean Snaith, Director of UCF’s Institute for Economic Forecasting, explains his timeline and predictions for complete economic recovery.


Featured Guests

  • Sean Snaith – Director, UCF Institute for Economic Forecasting

Episode Highlights

  • 0:45 – Sean Snaith introduction
  • 1:31 – Just how bad did it get in 2020?
  • 4:54 – How Sean Snaith describes the economy today
  • 7:01 – The U.S. government’s response
  • 9:46 – Will new stimulus packages be effective?
  • 11:41 – How did Florida fare compared to the U.S. economy?
  • 16:06 – The future of the U.S. and Florida economies
  • 18:18 – Economic recommendations for the Biden Administration
  • 22:48 – New taxes?
  • 25:21 – Are the “Roaring ’20s” going to be a thing?
  • 26:54 – Paul Jarley’s final thoughts


Episode Transcription

Paul Jarley:                         So between now and election, what do you think, the economy going to have a recession? Yes? No? Why?

Glenn Hubbard:               On balance, I don’t think we’re at the cusp of a recession.

John Solow:                       I absolutely agree with Glenn’s take on what things are doing now.

Paul Jarley:                         No, I think the short answer is no, there’s not going to be a recession before the 2020 election or in 2020 at all, I think.

Sami Alpanda:                   I agree with almost everything that has been said so far.

Paul Jarley:                         Turns out they were all wrong. This year was all about separating hype from fundamental change. I’m Paul Jarley, Dean of the College of Business here at UCF. I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, is this really a thing? Onto our show.

Paul Jarley:                         2020 threw everyone a curve ball. That recession, well, it turned out to be a thing. Is 2021 the return of prosperity? Will the economy go on a run like it did in the 1920s? I sat down with our resident expert, Dr. Sean Snaith, he’s the director of our Institute for Economic Forecasting. Listen in. Well, thanks for joining me today, Sean.

Sean Snaith:                       Pleasure.

Paul Jarley:                         We’ve got a lot to cover. I’m going to ask you to be the ghost of economy past, present, and future, if you don’t mind. And let’s start out with the past. Back in 2019, I hosted a panel of people, including Glenn Hubbard at that time and asked them whether a recession in 2020 was possible and all of them to a person and you as well said, no chance, right?

Paul Jarley:                         The economy was really humming. When I asked them what they were concerned about, frankly, they had trouble coming up with anything and then March of 2020 happened. So how bad did it get in 2020?

Sean Snaith:                       Well, at least I’m in good company in being wrong, I suppose. And I don’t know if I’m the ghost or I’m haunted by my past forecast, but I don’t think, two things, that I don’t think anyone saw coming. One is a pandemic, global pandemic out of China. That’s one thing. This is …

Paul Jarley:                         That’s the exogenous shock.

Sean Snaith:                       That’s the exogenous part. And so this stuff happens. Now, could that in and of itself have triggered a recession? Maybe.

Paul Jarley:                         Maybe.

Sean Snaith:                       Maybe. But it was the endogenous part or the policy response to it that really put us into the historic downturn. And that was the decision in March and April to lock down, quote unquote non-essential sectors of our economy. And that was instantaneous recession. I mean, just add water, just add bad public policy and there you go, that’s a command economy. The government says you don’t make anything. You can still make things. And I mean, it was deep and it was instantaneous and there was no uncertainty about the fact that we were in recession.

Paul Jarley:                         Has it been the most uneven economy? I don’t know that much about the history of this, but I mean, clearly there have been big winners and losers in this. So there are some parts of the economy that did gangbusters, right? Our friends in Lakeland, Publix did really well during this period.

Sean Snaith:                       Well, yeah and I played a large role in that. That was for years been my sort of social activity was making up the excuse to go to Publix to get out of the house. But there were huge winners during this and again, chosen by the government by and large. If you had a nail salon, you were a loser. If you were selling groceries, you were a huge winner. If you were selling goods and services online, you were a huge winner.

Paul Jarley:                         If you required a crowd to be successful, you were a loser. That was sort of the rule, quite frankly. And instead if you were selling something that people could enjoy by themselves in general, you were a winner, I suppose a part of this, but I can’t think of another recession I could summarize that succinctly. Go ahead. Quite frankly, can you, I mean-

Sean Snaith:                       I mean, this is unique. I mean, and again, typically, you may have an exogenous shock that can knock the economy off its tracks and precipitate a recession, but generally there’s some internal weakness already in place.

Paul Jarley:                         Oil in the ’70s, probably the best example, right?

Sean Snaith:                       That was a huge shock a couple of times. And oil was far more important to the economy back then than it is today in terms of how much oil we use to produce GDP. But this was just unprecedented and like I said, I just couldn’t believe what was being done under the guise of public health.

Paul Jarley:                         So how would you describe the economy now< today?

Sean Snaith:                       I think, we’re in the midst of a pretty solid recovery. And again, this is because of the nature of this recession and its uniqueness, typically, there’s a psychology involved with recession and accenting recession and confidence has to build. And, it’s a more gradual process, typically. Everyone knew why the economy was in recession. It wasn’t because the economy was in poor shape. It was because the government shut it down.

Sean Snaith:                       And that’s why the panel of economists in 2019 said everything was fine. And that was true through much of February, the economy was in fantastic shape, maybe the best I’d ever seen, in terms of the labor market, for sure. And so, in order to get out of recession, it was pretty easy to do.

Sean Snaith:                       And the big thing was to let the economy open up again, tell them all, that millennia you can have shoppers there. And all of a sudden we’re selling retail goods again, that weren’t being sold for several months. And people that were furloughed were being, at least part of them were being called back. So, we saw in the third quarter of 2020, a really large, almost 34% increase in GDP growth at an annual rate that was after the second quarter’s contraction, historic of 31%.

Sean Snaith:                       We just got a report this morning in the fourth quarter, the first take on GDP growth. And it came in at 4%. So we’re continuing in a recovery. It hasn’t been officially declared. I think the MBER who weighed in very early on when the recession began, will likely declare I think May, but May or June of 2020 is to when we hit the bottom and began this recovery process. And I think most of the data while it’s not final, supports that.

Paul Jarley:                         Let’s talk about government response for a little bit. So we’re talking about our third fiscal stimulus package, if I got my numbers right, I think. The Biden administration is talking about their third in year judgment. How effective were the first two and how necessary is the third one?

Sean Snaith:                       I think the first one, again, we threw in a matter of weeks, close to 40 million people out of work, I mean, just, the labor market doesn’t function like that under normal circumstances. It lags behind the economy and unemployment rises gradually. It doesn’t spike. And so that money was needed. Unfortunately, I mean, it happened pretty rapidly by DC terms, $2.2 trillion, passed and signed in a matter of weeks, that’s a record as well, but we traded off sort of precision for speed. And so people were getting checks quite frankly, that didn’t need those checks.

Paul Jarley:                         My father who passed away got one.

Sean Snaith:                       And there’s plenty of examples of that, but that’s a different kind of mistake, but I mean, giving it to somebody who’s been working through the entire pandemic and hasn’t seen any loss.

Paul Jarley:                         It was a blunt tool, right? An immediate blunt tool.

Sean Snaith:                       And so that helped, but it wasn’t enough of course, because the economy’s still, really didn’t recover until we opened things up.

Paul Jarley:                         Well, I have to put this in perspective, maybe for people who don’t follow this as much as you and I do, right? In 2019, the economy was $22 trillion give or take, right? So a $2 million or $2 trillion package is little under 10%.

Sean Snaith:                       I mean, it’s fairly big, much larger than our collective response to the great recession after 2008, 2009. And the total response, which was, I think about 1.6 or 1.8 trillion, it took about 16 months to be kind of rolled out and implemented piecemeal, right?

Paul Jarley:                         And spent.

Sean Snaith:                       And spent. So this was very quick, very large and necessary because of what had happened with the shutdowns. Now, had we not shut down everything and let people make their own decisions, and, maybe do public health measures, masks, social distancing, washing your hands, sanitizing, common air, but let the economy continue to function, I think we would have seen maybe a recession, certainly nothing on the magnitude of what we went through.

Paul Jarley:                         The second stimulus is really just rolling out now, how effective do you think it will be?

Sean Snaith:                       Well, the second one, a little bit smaller. It will help. Again, I think the big thing is, is the economy’s reopening. Consumers are spending again, a lot of pent up demand from this recession. We’ve got the vaccines through the approval process and manufactured and being administered. So as we proceed through 2021, that fear factor is going to go down.

Sean Snaith:                       The ability to be in larger crowds should be increasingly possible as we go through 2021. So, that’s really going to be more important than any stimulus. And so this 1.9 trillion that’s being discussed now probably is overkill where we are in the recovery, but if they’re going to do something, let’s take the time and target it to those who need it.

Paul Jarley:                         I mean, so I can see extended unemployment insurance benefits for people who are still out of work, right? Rather than just mailing checks to people.

Sean Snaith:                       Willy nilly. This shut down and this recession has really disproportionately hurt lower income households. I mean, like no other.

Paul Jarley:                         Service industry people, right?

Sean Snaith:                       Service industry people. I mean, obviously here with tourism being such a large sector, tens of thousands of people lost their jobs in tourism and related businesses. Those are the people that have not gone back to work. These are the people that are still unemployed. These are the people that need help, not people that have been lucky enough to work throughout the entire pandemic.

Paul Jarley:                         So did Florida do worse than the US economy as a whole?

Sean Snaith:                       Yeah. Well, the contraction in state GDP, I think-

Paul Jarley:                         On percentage terms.

Sean Snaith:                       … in percentage terms, I think we’re projecting about 6% versus 3.5% nationally. So and again-

Paul Jarley:                         This is bad, basically.

Sean Snaith:                       And it makes sense because the devastation to tourism. I mean, Orlando International Airport, passenger traffic was down 97% year over year in March and April. I mean, that’s effectively shutting it down. And then we had the major theme parks closed and people weren’t going to the beaches and spring break was viewed as evil for different reasons this year than it usually is. It was going to be this huge, super spreading event, right? Super spreaders. So Florida took it really on the chin and tourism is still climbing its way out of that very deep hole, but the rest of the economy, certainly didn’t fare as badly.

Paul Jarley:                         Do you think this next stimulus package will pass? Do you think Congress will do something?

Sean Snaith:                       I’m curious if there’s been pushback because one thing I’ve observed, at least recently in politics is that when it comes to the Democratic Party, there are no deserters. They sort of march and vote in lockstep and maybe somebody will pay a little lip service here and there, but you don’t have people voting against the party very much.

Sean Snaith:                       And so they’ve got, majority’s albeit slimmer than they did in 2008. So it’s interesting to see some pushback and, it may be the nature of the executive office not being as forceful perhaps that there’s a little more pushback. But I think something will come through. 1.9 trillion, almost the same size as the package we did back when the economy was contracting 31% at a time when the economy is six months into recovery, it seems a little late in the game to be spending that kind of money.

Sean Snaith:                       And then, we were talking about before we began recording, yelling at kids that are on my lawn. I’ve been doing the economic equivalent of that for about 10 years about the national debt.

Paul Jarley:                         Well, I’m right there with you, brother. We’re probably the only two people who talk about this regularly.

Sean Snaith:                       And it’s true 27.6 trillion right now. If this goes through, let’s just say a trillion dollars that plus still a reduced tax revenue, I mean, we’re going to be pushing $30 trillion, but certainly by the end of 2022, at this pace, balanced budgets, surpluses, budgets at all, I mean, who needs them? We’ve got continuing resolutions to fund everything, no debate over priorities. No, it’s just spend away. But I’ll say the same thing about the debt. You can’t run up debt like this forever.

Sean Snaith:                       We can’t have a climbing debt to GDP ratio without a day of reckoning at some point. I mean, we’ve been lucky. I don’t know if it’s lucky. I mean, we’ve been enabled.

Paul Jarley:                         Well, interest rates have been so low for so long.

Sean Snaith:                       Well, that’s it. And so there’s been no short-term pain from all this borrowing, but interest rates aren’t going to be low forever. Now, they might be for five more years, they might be for 10 more years. But if we keep adding to that debt and interest rates start to rise, then the burden of that debt’s going to rise right along with it. And we don’t have wiggle room in the federal budget. I mean, most of the federal budget is non-discretionary spending, mandated entitlements and can’t be touched. The discretionary stuff, oh, less defense, more educated. This is nickel dime stuff when you’re looking at a debt approaching $30 trillion.

Paul Jarley:                         So let’s go on to the future. Then when does the economy recover to pre pandemic levels? What’s your best guess on that? Both nationally and in Florida.

Sean Snaith:                       Well, I think in the aggregate, if you’re looking at total payrolls, your total jobs in the economy, I think by the end of 2021, we should be back to where we were in terms of payroll levels. The unemployment rate, probably not down to the same levels by then, but I think into 2022, again, assuming that this recovery progresses and there’s not another policy shock or a viral shock, but with tourism lagging, right, I mean that-

Paul Jarley:                         I think Florida will come out a little later.

Sean Snaith:                       I think we’re into 2022 before tourism sort of gets back. But the data thus far is encouraging on that front. Passenger traffic over the holiday season in Orlando was the largest in the nation, down still 42% year over year. But, again, as we discussed earlier, it was down 97% in March and April. So, that bounce back is really pre vaccine, right? Nobody had the vaccine for the most part, or very few people did by the time the holiday season rolled around, this was just people saying, I see what it is.

Sean Snaith:                       We know what risks are, I’m traveling, and as the vaccine is administered more widely, then I think that tourism accelerates as that takes place. So I think, by the time we get to summer, it may not be exactly where we were in the summer of 2019, but I think we’ll be 75 to 80%.

Paul Jarley:                         So if you’re the Biden administration, what do you do?

Sean Snaith:                       Well, take it easy on executive orders. No, I think they’re going to need to do some, they’ll do some stimulus. I would say again, let’s make it targeted to those that really need it to the individuals and the businesses that were damaged the most by these lockdowns in this COVID-19 recession. And then, take the foot off the gas and let’s see how 2021 plays itself out because I do think the pent up demand is still out there.

Sean Snaith:                       It hasn’t been fully vented and as 2021 rolls on, and people start to go do things in crowds and travel and all these things that have been curtailed, you’re going to see a lot of growth in consumer spending. I mean, if you look at the upper rungs of the household income ladder, that spending is way down still, compared to where we were pre pandemic. And that’s because those households are the ones most likely to go spend two weeks in Aruba or go out.

Paul Jarley:                         Most discretionary experience-based spending, right?

Sean Snaith:                       Exactly.

Paul Jarley:                         We talked about it.

Sean Snaith:                       And so that has not been uncorked yet, so that’s still coming. I think housing is a pretty solid driver of the economy, not just here in Florida, but nationally, and I think will continue to be. It was unusual, although it’s not late cycle anymore, but pre COVID 19, there was a booming or building boom in housing taking place. And that was at the tail end of that expansion.

Sean Snaith:                       Usually construction booms at the beginning of an expansion. So we had this late expansion wind from construction and that breeze is still blowing. And I think, continues through 2021 and probably a couple of years beyond.

Paul Jarley:                         Do you think there’ll be a tax increase?

Sean Snaith:                       Well, the tax cut and jobs act, I think some elements of that are going to go. It’s always easy to just say, well, we’re going to tax corporations more and just, pretend that there’s some extra-terrestrials-

Paul Jarley:                         That pay that tax.

Sean Snaith:                       Yeah. That pay that tax, that it isn’t really us paying it, but it’s confusing enough to most people that they think that they’re not paying it. So, I think you’ll see that, always fashionable to tax the rich. So, those high-

Paul Jarley:                         Find is over $400000. Is that the current proposal, I think.

Sean Snaith:                       Well, it depends on where you live and if you have kids. So I think taxes are going up and so that will have a dampening impact on the economy going forward. I think the economy, because of the COVID thing’s got some momentum here as we recover from that.

Paul Jarley:                         So it may not be a bad time in the short term, [crosstalk 00:21:49], right?

Sean Snaith:                       Yeah. But what I would expect to see, and I don’t know if it will be in this administration, but at some point there are going to be new taxes implemented. And I think, again, back to this 20, 28, 27 and a half trillion dollar debt and growing, it’s got to be paid for somehow. There’s growth taxes, I think, your 401k might suddenly be subject to a charge or a withdrawal processing privilege fee, financial transaction taxes, we’ll get those GameStop Redditors, we’ll make them pay a tax every time they try to buy. And I think in the medium run, that’s likely to be the case.

Paul Jarley:                         Is it politically or economically viable though to create a new set of taxes that would actually put the federal budget in balance? You go back to pre ’20 spending, 2020 spending.

Sean Snaith:                       Well, again-

Paul Jarley:                         Because there’s two ways out of this, right? We either cut spending and get back into a balanced budget or a surplus situation. Or not unlike UCF, we can try to grow our way out of this.

Sean Snaith:                       Well, there are limits to enrollment and the best of growth that we could expect would be insufficient to deal with the debt that we have. And we’re not-

Paul Jarley:                         5%. I mean, 5% would be historical.

Sean Snaith:                       It would be historic. It would need to sustain that. And even then would still have to make some decisions, but what’s not been addressed are entitlement programs. Those taxes have been tweaked a little bit, the income limits have been pushed up. I think that’ll be part of that puzzle.

Paul Jarley:                         Retirement ages might go up as well. I could see that happening.

Sean Snaith:                       And again, as I get closer to eligibility, my opinion changes a little bit. Dammit, I want my social security, but it was originally not meant to be a 35 year defined benefit pension from the government. This was to keep the elderly, many of whom fought in the great wars and supported those efforts and, lived through the depression and, work to make our country great. And to make sure they didn’t end their lives in poverty.

Sean Snaith:                       And so the eligibility age at the time it was, the program was created, was older than the life expectancy. And so that hasn’t changed much in terms of eligibility age, but life expectancy has gone up significantly. And so that’s why people are at the social security trough for much longer than historically was the case.

Sean Snaith:                       Anytime you try and touch social security, you’re pushing grandma off the cliff in a wheelchair, the AARB, Jack boots come out after. I think there’s a realization, finally dawning here that we’re in trouble with this program as it is, the status quo is non-sustainable.

Paul Jarley:                         So last question, is the roaring ’20s going to be a thing?

Sean Snaith:                       It was for two months. The first two months was the best of times.

Paul Jarley:                         Can we have another decade long run?

Sean Snaith:                       I’m not sure. I think that there’s significant damage from this recession. I said, well, the aggregate, we might get back to the numbers in a year, year and a half, there’s still going to be losses that don’t get-

Paul Jarley:                         Persist.

Sean Snaith:                       And particularly small businesses.

Paul Jarley:                         No doubt.

Sean Snaith:                       Many did not make it through the lockdown itself, many limped on for awhile, but will not survive 2021. And so those folks, those resources have to be sort of redeployed. I’m a bit concerned about policy. I mean, it seems like we’re slipping back towards, sort of policies that do have a downward impact on economic growth.

Sean Snaith:                       A lot of the Obama, Biden type ideas are sort of being rolled out again. And I think a lot of that is what kept the economy from really bouncing back more strongly after the great recession. And so, again, I don’t know, I have to wait and see what actually happens and what gets passed, but what’s being discussed seems awful familiar.

Paul Jarley:                         Thanks, Sean.

Sean Snaith:                       Thank you for having me.

Paul Jarley:                         It’s my podcast. So I get to go last. The Spanish flu gave a way to the roaring ’20s. Will history repeat itself? Pent up demand is most certainly a thing. People have been cooped up in their houses for a long time. And when this pandemic ends, they’re going to want to party and travel. Some of this will result in a shift in consumer spending away from goods and towards entertainment and experiences, but on balance, I think a pretty big bump is coming.

Paul Jarley:                         But for all this to happen, the pandemic has to end. We can talk stimulus packages all we want, and some money is certainly needed, but the best stimulus package in my mind is the one that puts as many needles of the vaccine into people’s arms as quickly as humanly possible. It is ultimately consumers, not the government that will drive this rebound and to do that, people are going to have to feel safe going out again.

Paul Jarley:                         Will this lead to a decade long expansion? I doubt it. We’ve got a big bill to pay. Tax increases are probably in our future, and this will slow economic growth some, but the roaring ’20s were mainly fueled by technological innovation as the electrification of America and the rise of mass production opened up new markets and fueled job and income growth.

Paul Jarley:                         Maybe we’ll see a number of innovations hit the market in the post pandemic world, but I doubt they will replicate what happened in the 1920s. That said, predicting the future is a risky business. And right now, just returning to business as usual seems like reason enough to celebrate. What do you think?

Paul Jarley:                         Check us out online and share your thoughts at business.ucf.edu/podcast. You can also find extended interviews with our guests and notes from the show. Special thanks to my producer, Josh Miranda, and the whole team at the Office of Outreach and Engagement here at the UCF College of Business. And thank you for listening, until next time charge on.

Listen to all episodes of “Is This Really a Thing?” at business.ucf.edu/podcast.