Louisiana’s economy is about 80% “back to normal,” marking a positive sign for the state’s post-pandemic prospects as the global oil glut is worked off and pent-up consumer demand for travel builds, a Pennsylvania-based economist told attendees of the Baton Rouge Area Chamber’s virtual Statewide Economic Development Summit.
In his keynote address this morning, Mark Zandi, chief economist of Moody’s Analytics, said the U.S. will not experience a “V-shaped” economic recovery, but more of a “K-shaped” one, with different paths to recovery for different sectors.
“The state of the economy depends on what part of the elephant you’re touching,” said Zandi, who studies macroeconomics, financial markets and public policy. “Some parts will do really well and others will get crushed.”
Generally, stores selling building materials, health care products, electronics and wholesale goods, as well as businesses in the software, data processing, telecommunications and nursing care industries, will fare well, based on current B2B spending growth patterns analyzed by Moody’s. However, oil and gas extraction, along with most leisure and hospitality-type businesses that rely heavily on tourism—including museums, restaurants and airlines—will continue to suffer through 2021.
Taken alone, this could mean a grim forecast for Louisiana. But Zandi predicts global oil demand will recoup three-quarters of its pandemic-era shortfall within the next 12 to 18 months, though he concedes the remaining one-quarter “will take some time to get back,” considering that it may take other parts of the world longer to distribute the COVID-19 vaccine and that business travel likely won’t come “roaring back” to its pre-pandemic levels.
“Over the next year or two, we should see much better pricing in the energy sector,” Zandi said, noting the current price of oil is $45 a barrel.
Moreover, while business travel isn’t expected to rebound on the other side of the pandemic, tourist travel is, with Americans having, on average, nearly $1,400 in cumulative excess savings as of October. Pent-up consumer demand among middle- and high-income households will continue to grow, Zandi said, which could mean good news for states with largely tourism-dependent economies.
There are already signs the state is recovering relatively well. According to a “back-to-normal” index developed by Moody’s Analytics, Louisiana’s economy in November was around 80% of where it was on March 1, before the pandemic hit. By that metric, the state is performing slightly better than the rest of the U.S., which was approximately 75% “back to normal” in November.
Among Zandi’s other predictions:
• The U.S. economy—which has so far recovered 12 million of the 22 million jobs lost between March and April—won’t recoup the remaining 10 million jobs lost until late 2023, considering some 5 million people believe they lost their jobs permanently.
• Spikes in COVID-19 cases present the greatest risk to economic recovery. “If there are more infections and hospitalizations, unemployment goes up, not only because local officials will pull back on business activity, but because people are also just nervous and don’t want to get sick,” Zandi said. “The next two to four months will be very uncomfortable, and we could see some more job losses.”
• Another federal relief package would benefit the country. If lawmakers sign a $900 billion fiscal rescue package, the economy could reach its full employment potential by late 2023. Less likely to happen is a $2.25 trillion package being pitched by congressional Democrats, which would bring employment back to normal levels by early 2023. However, if no federal action is taken, the U.S. could go back into a recession.
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