J.P. Morgan Chief Investment Officer Bob Michele predicted it will take 10-12 years after the pandemic for U.S. employment to get back to its pre-coronavirus level, insisting it won’t be as simple as turning the economy back on.
“No, it’s not that simple … it’s going to take years, or longer to get back to where we are, or where we were,” Michele said on Bloomberg when asked if reopening would be as simple as “turning on the lights.”
Michele noted that there was a huge error when predicting unemployment numbers, as millions of Americans are losing their jobs amid the pandemic. He then compared unemployment rates during the coronavirus outbreak to the 2008 financial crisis.
“When you look at the congressional budget office forecast for the end of 2021, they have unemployment at 9 percent, so sure, materially better than where we’re going to peak in the high teens, but during the peak of the financial crisis, unemployment hit 10 percent,” he said. “So even looking out a year and a half from now, we’re still going to be roughly where we were at the peak of the financial crisis.”
Michele questioned what would happen when the Paycheck Protection Program (PPP) runs out of money and predicted that even when the economy reopens, Americans will not be spending the same way they did before the virus hit, which could lead to another round of layoffs.
“One of the things we did was to just predict a downdraft in the second quarter, somewhere around 10 percent, so call it 38 to 40 percent annualized, and say that’s the trough, and then start this journey back up to the longterm trend rate,” he added. “To catch up to the longterm trend rate that’s been in place, call it 1.5 percent, pre-crisis, to fill that output gap, we estimate it will take ten to twelve years.”
Michele noted that it took the U.S. economy 8.5 years to reach the long term trend line following the financial crisis, so he was confident in his projections.