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Markets and Economy

The COVID-19 Recovery May Cause Lasting Changes in Technology and Productivity

Many businesses tend to be inherently conservative, embracing big changes only when their current business model has been upended. The novel coronavirus’s disruptions may serve as a transformational catalyst across the economy.

Key points:

  • Worker productivity has historically surged in the early stages of economic recoveries.
  • The COVID-19 recovery could see productivity-enhancing technologies unleashed on a massive scale—especially in healthcare and retail.
  • Businesses will need to innovate to take full advantage of this technological wave.
  • While these changes will be disruptive for a while, industrialized economies have often quickly returned to full employment after a crisis.

Productivity unleashed: The spread of COVID-19 appears to have crested in the nation’s hardest-hit metros, and businesses are gradually reopening. Historically, economic recoveries have been accompanied by a surge in productivity due to workforce reductions—the COVID-19 recovery could see the same trend.

  • During the last recession, between 2007 and 2010, worker productivity jumped 7 percent—the fastest increase in two decades.
  • The current crisis could create a new surge of worker productivity as businesses eliminate redundant positions and retain only their most productive workers.
  • Telework has shown great promise as a potential productivity booster as many organizations have embraced video conferencing during the pandemic, allowing workers to salvage hours previously wasted commuting to work and traveling to off-site meetings.
  • The rise of remote work may also alleviate some of the distortions caused by the exorbitant cost of living in coastal metro areas.

The time for transformational technology: Many businesses tend to be inherently conservative, embracing big changes only when their current business model has been upended. The novel coronavirus’s disruptions may serve as a transformational catalyst across the economy.

  • The shutdown of physical storefronts has boosted e-commerce considerably—Walmart saw a 74 percent increase in online sales in Q1.
  • During the shutdown, e-commerce has even been making inroads into car sales and real estate viewings.
  • COVID-19 revealed a lack of flexibility and surge capacity in the US medical system. Consequently, the healthcare sector has had to embrace efficiency-improving technologies that may have a lasting effect on the way patients receive care.

Some things may stay the same: COVID-19 has created a great deal of uncertainty and dislocation throughout the economy, but corporate profits are poised to regain their high levels and the labor market is likely to make a swift rebound.

  • The durability of corporate profits has helped keep the equities market resilient in the face of uncertainty.
  • Investors are confident that after-tax profits will continue to capture 9 to 10 percent of the nation’s GDP, up from their 6 percent postwar average.
  • Nearly 40 million workers have been displaced from their jobs (some temporarily, while lockdowns are in place) by the pandemic.
  • However, after every recession, the American economy has created jobs at an above-trend pace.
  • The return to full employment is the economy’s most consistent tendency, supported by the Federal Reserve’s mandate to maximize employment through monetary policy.
  • That said, a second wave of COVID-19 cases or delays in the development of a vaccine could hinder the recovery and return to full employment.
  • Despite this spring’s abrupt downturn and the accelerating pace of technological transformation, the recovery will likely create new opportunities for displaced workers.

Jim Glassman, Head Economist, Commercial Banking

Jim Glassman

Jim Glassman, Head Economist, Commercial Banking

Jim Glassman is the Managing Director and Head Economist for Commercial Banking. From regulations and technology to globalization and consumer habits, Jim's insights are used by companies and industries to help them better understand the changing economy and its impact on their businesses.

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