How The Pandemic Differs From A Typical Economic Recession

Economic Recession

By Karlton Jahmal

Essential businesses made out pretty well during the pandemic. Nobody was buying out grocery stores during the 2001 or 2007 economic downturns. There were no positive economic records created during the recession of 1991. However, in 2020, many essential businesses set new sales records because they could stay open.

Grocery stores, home improvement stores, liquor stores, drug stores, and marijuana dispensaries are just a few of the industries that thrived during the economic slump. Items like toilet paper and pre-rolled joints were purchased in record numbers. Why is that? Well first, we need to take a look at the economy as a whole during times of economic recession.

Supply & Demand During The Pandemic

Because the pandemic was more like a natural disaster than a financial bubble burst, the recovery from the slump is already moving admirably. The global pandemic spread like a massive hurricane. But instead of destroyed infrastructure, this disaster left shattered businesses in its wake. Typically, in times of great economic recession, Americans spend less on what they don’t need. So, saving increased while household spending decreased during the pandemic.

However, this economic recession was unique. Typical recessions occur because of a rise in interest rates or a decline in the value of assets. These factors tend to heavily damage supply and demand. This, in turn, hurts income and employment which harms the economy for elongated periods.

When there is a natural disaster, we see a temporary disruption in the local economy. For example, when Hurricane Katrina ravaged Louisiana, the economy there took a hit. However, the underlying supply and demand for goods were only interrupted for a short period of time. Once the damage from the hurricane was cleared away, the economy in Louisiana recovered fairly quickly. Two years after the devastating disaster, unemployment fell back down.

Two years after Katrina, unemployment rates dropped significantly.

Many people went back to their jobs and returned to consuming the same way they did prior to the hurricane. Incomes recovered within a few years and businesses thrived. While the scars of the disaster still exist, the economy rebounded admirably.

This is much different from an economic recession that is caused by financial factors. In those cases, the underlying supply and demand for goods become severely altered for longer periods of time. For example, the infamous real estate bubble burst caused thousands of Americans to lose assets permanently, which in turn caused job losses, decreased spending, business closures, and migration to cheaper states and towns. As seen below, a steep decline in unemployment rates takes much longer after a typical recession. Whereas in post-Katrina Louisiana, we see a massive decline within two years.

It typically takes many years for unemployment to reach pre-recession levels

During the last recession, the recovery was much slower because of defaults and foreclosures that caused long-lasting effects to supply and demand in the market. The recovery after the pandemic will look much more like that of a post-natural disaster than a typical economic recession.

Income In The Pandemic

Another factor we must consider is income during the COVID-19 pandemic. During economic recessions of the recent past, most Americans faced declining incomes or insufficient incomes to battle rising costs. A very unique factor of this particular pandemic was the added unemployment benefits.

There were plenty of Americans making more on unemployment than they were when they had a job. Not to mention the distribution of stimulus checks, which many Americans either put back into essential businesses or their savings accounts. This raise in personal income for many Americans is unheard of during a recession. It caused an increase in three things: education, savings, and spending at essential businesses.

With the extra personal income, and all the time in the world, many Americans either went back to school, put more money into their savings, or spent money where they could. College applications hit record numbers because many schools suspended testing mandates for SAT and GMATs during the pandemic. Because of lower interest rates, home purchases shot up after an initial slump. Spending at essential businesses like grocery stores and dispensaries also increased exponentially.

Of course, there were also groups of Americans that saw a decrease in income if they didn’t receive unemployment benefits. Also, the PEW Research Center reported that lower-income Americans and minorities struggled financially during the pandemic more than others. These Americans were hit the hardest, yet they still had to spend money at essential businesses regardless.

The Essential Business Boom

Essential businesses were in the position to capitalize off the pandemic due to the unique conditions across the nation. With Americans unable to spend money on the same events and items from pre-lockdown, many had the income to spend elsewhere. The most obvious “winners” of this boom are grocery stores and drug and pharmacy locations. However, one unexpected sector that saw growth was the cannabis industry.

Marijuana dispensaries are labeled as essential businesses in some states because of the medicinal properties of cannabis. Pre-roll and pre-rolled cone sales skyrocketed during the pandemic, climbing approximately 50% in 2020 in major recreational markets. Items such as RAW cones were scooped up at record numbers.

The cannabis industry boomed during the pandemic.

Another strange occurrence of growth took place in the food packaging industry. Freedonia analyst Carolyn Zulandt explained to Market Research, “Unlike a number of other industries, frozen foods — and the packaging for these foods — are seeing a boost in sales during the pandemic, primarily due to shifts in consumer buying habits. Consumers are preparing more meals at home and stockpiling food items with longer shelf lives, all of which benefits sales in the freezer aisle.” Items like mylar bags, which are used for food packaging, saw an uptick in sales.

With more people at home, pet purchases, and the items that pet owners need, also saw a bump. David Sprinkle of Market Research stated, The pet adoption wave ties not only to the stay-at-home pandemic period, but more specifically to having kids underfoot at home, given school closures and the disruption of recreational and entertainment activities. Given that pet ownership is a discretionary expense, and typically a considerable one, multiple-pet households tend to be relatively higher-income, further fueling the pet product and service premiumization trend that has reshaped the pet industry and made it an apple of investors’ eyes.”

These are just a few industries that saw growth during the pandemic. However, taking a look at these industries gives us a little insight into the minds of Americans in 2020. While imperative purchases, such as frozen food and groceries, are smart during an economic downturn, the splurging on marijuana and puppies shows that this wasn’t your typical recession.

America Is Bouncing Back

Because of the uncommon factors that highlighted income, spending, and saving during the pandemic, the recovery should be quicker than a traditional recession. The demand for services and goods was only put on a halt, and will return to pre-COVID numbers faster than economists predicted a year ago. Millennials and Gen Zers are spending more than they did before the pandemic, and younger workers are also flooding into jobs due to labor shortages that businesses are experiencing because of returning demand.

Americans are returning to the workforce as demand increases due to the end of many regulations and lockdowns.

“We assumed there was such pent-up demand — not only for travel, but such a pent-up demand for consumer goods — that the US recovery would be like it is right now,” American Express CEO Steve Squerisaid told Business Insider, expressing his opinions of the economy as of June 2021.

However, as the nation starts to rebuild and recover at a rate faster than expected, we must not forget those who were hurt the most during the pandemic. Yes, an increase in savings and education combined with the essential business boom will help lay the bricks on the road to recovery. Nevertheless, we must navigate down this road hand in hand to reach a level of true economic redemption in America.


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