25 COVID-19’s Effect on the Economy

Introduction:

The Great Depression previously could be considered the weakest point in American history, but in March of 2020, America’s economy hit record lows when the Coronavirus took the world by storm. The COVID-19 pandemic caused the largest global recession in history and led to at least one third of the world being placed under lockdowns in an attempt to prevent the spread of the disease. As a result, producers began to price gouge as consumers started panic buying, and businesses were shut down by government regulations. Lockdowns, panic buying, and a pandemic; all these occurrences were so rare. They were almost unheard of in America which led to a mass panic over how to stop them. Technology in America was used during the Coronavirus to keep the economy functioning while businesses and people were under lockdown. COVID-19 caused a dramatic plummet in the American economy as evidenced by the closing of business, reduction in productivity, and record low unemployment rates.

Connection to STS Theory: Social Constructivism

A major theory that presents itself through COVID-19’s effect on the economy is the Social Constructivism Theory. The Social Constructivism theory believes that people’s ideas about technology and technology itself are always changing. These changes generally occur to fit individuals current needs at the time in hopes to advance society. When COVID-19 touched America’s economy, the need for technological advancements presented itself. Changes in the digital economy began occurring such as meetings over Zoom calls, online grocery delivery services, and probably the biggest innovation stemming from the pandemic: digital supply-chain interactions between customers and producers. The economy as a whole was forced to make online interaction a must while the pandemic ensued. Social Constructivism highlights why this was a must. During COVID-19, to keep up with a rapidly changing world and economy with constantly changing demands, technology had to be able to advance a matter of years worth of digital changes into a couple months. How COVID-19 affected the economy and how STS had to combat these new challenges will be covered in the following sections.

COVID-19 and The Stock Market

On February 24, of 2020, the Stock Market fell and within a week, America’s Stock market had seen its greatest decline since the 2008 stock crisis due to COVID-19. When the stock market fell so low, more than five years of economic growth had been completely wiped out. As stated in the 2020 World Economic Forum, “Gross domestic product collapsed at a 32.9% annualized rate last quarter, the deepest decline in output since the government started keeping records in 1947. The drop in GDP was more than triple the previous all-time decline of 10% in the second quarter of 1958. The economy contracted at a 5.0% pace in the first quarter. It fell into recession in February” (Mutikani). America’s GDP hit record lows once demands shifted in the economy, exports decreased and consumer spending decreased. For example, after COVID-19 spread to America, air travel was significantly decreased; which would in theory lead to a GDP decrease (less money circulating through the economy) (Mutikani).

As a result of COVID-19, consumer and business spending decreased as well, which negatively impacted the economy. The World Economic Forum also explained that, “The U.S. economy suffered its biggest blow since the Great Depression in the second quarter as the COVID-19 pandemic shattered consumer and business spending, and a nascent recovery is under threat from a resurgence in new cases of coronavirus”(Mutikani). Consumer and business spending are very important to the growth of the American Economy. Without money circulating in the economy, businesses began to lose incentive to produce more goods or even hire more employees.

After COVID-19 made it to America and reduced the stock market, forced lockdowns were imposed, which directly affected businesses as a whole. According to the US Census Bureau’s Small Business Pulse Survey,

“Over 30 percent of the businesses saw a large negative impact when COVID hit America. Over 44 percent of small businesses saw a moderate negative impact in their business. The national average of businesses such as Oil, Healthcare, Warehousing, Wholesale Trade, etc. according to this census is 30.4 percent ” (according to negative COVID-19 effects) (United States Census Bureau).

To attempt to prevent the spread of the virus, the federal and state governments imposed lockdowns to close down any non-essential businesses. This was an attempt to keep citizens at home and reduce the exposure to COVID-19, but it left businesses hurting. Hundreds of thousands of businesses across America were forced to close their doors on account of the imposed lockdowns. Which in turn hurt the economy almost as much as the individual businesses themselves.

COVID-19’s impact on businesses

To narrow the focus on COVID-19 and the negative impact it placed on businesses, it is important to determine which businesses were hardest hit. According to an article from the Business Insider, a respected news source on businesses and financial news in the US, jobs hardest hit by the pandemic include: hotels, sports and performing arts, furniture and home furnishing stores, restaurants, movie theaters, dentist offices, laundry, clothing stores, and amusement parks (Pietsch). The reason these specific businesses were the worst impacted by COVID-19 was because they were either deemed non-essential or they required too much interaction between individuals. For example, movie theaters, furniture stores, sports and performing arts, amusement parks, etc. were all considered non-essential businesses when the lockdown orders were put in place; which in turn meant they were forced to close for the duration of the lockdown order. On the other hand, dentist offices, hotels, and public transportation were all forms of activity that people feared to do while in a pandemic; so, those businesses suffered due to their lack of attention. In an attempt to stay afloat in a suffering economy during COVID-19, many businesses tried moving their services to online sales. STS was used at this point in businesses more than ever. This was due to the growing need for technology in businesses in order to expand their sales when in person activity could not be performed. COVID-19 directly caused businesses in America the need to expand and use technology if they wanted to remain open. Although, this approach does not work for every business. If a restaurant, coffee shop, or recreational facility is closed, there is no way the business could be moved online. Due to the imposed lockdowns from Coronavirus, businesses across America began shutting their doors for good.

Although there are not many who would dispute or argue against COVID-19 negatively affecting the economy, there are businesses that COVID-19 positively impacted. During a time period where thousands of businesses were struggling with sales and struggling to pay bills, businesses like Amazon and Grocery Stores across America were hitting record sales. According to an article in The Verge, an magazine that keeps track of new technological developments,

“‘Despite the pandemic, Amazon doubled its net profit year over year to $5.2 billion, compared to $2.6 billion at this time in 2019. This impressive figure comes after the company spent over $4 billion on what Bezos describes as ‘incremental COVID-19 related costs in the quarter to help keep employees safe and deliver products to customers,’ suggesting profit could have more than doubled if not for those expenses” (Faulkner).

The article suggests that COVID-19 caused Amazon’s profits to double from what their sales were at this time last year. Amazon also created 175,000 jobs during the pandemic and now is converting 125,000 of those jobs into full-time and regular employees. Many were shocked to see that amidst the economic turmoil the pandemic had placed on businesses, Amazon was economically flourishing (Faulkner).

Grocery Store sales also skyrocketed during the pandemic. Food retailers’ saw online sales jump an average of more than 300% in the first several months of the crisis. The pandemic suddenly and profoundly changed online grocery shopping. Virtually all retailers with online sales saw an increase in these sales during the first months of the pandemic. To meet the demand crush, 83% of retailers surveyed said they added more staff to handle online fulfillment, and 37% earmarked more workers to handle delivery of online orders. The Food Industry Association, which represents food retailers, wholesalers and suppliers in the United States and noted in its 2020 report that, with shelter-in-place and stricter social distancing guidance in effect early in the pandemic, more than half of retailers (51%) urged customers to order online (Redman). It pointed out that since lockdowns orders were in place, restaurants were closed and many people were forced to begin eating and cooking at home (Redman). This meant the grocery store trips or online grocery shopping became the go to for families around America. For those in America who did not feel comfortable enough to go grocery shopping in person, they would order their groceries offline and have them delivered to their home. The nationwide rise of at-home dining took an economic toll on the restaurant industry. The restaurant industry across the US took the largest blow from the pandemic. Many chose grocery trips over takeout and then eventually shut down orders took many restaurants out of business altogether.

Businesses like Amazon and the Grocery Store (BI LO, Publix, Walmart, Food Lion, etc.) all profited from their supposed easy access during a time such as the pandemic. When boutiques, shoe stores, or almost any other store close down, Amazon is available and offers some of the same or similar items shipped directly to the consumer’s door. This ensures safety and happens to be extremely convenient. And also conveniently, when restaurants close or are unable to serve sit down meals, grocery stores offer arrays of food selections to cook at home. The convenience and social distance safety these two businesses provide kept them profiting during a widespread economic recession and pandemic.

Unemployment

The closing of businesses during the COVID-19 pandemic also led into another economic impact: unemployment. When the COVID-19 pandemic occurred, unemployment rates rose to record highs while productivity rates declined. According to the National Bureau of Economic Research, “In February 2020, the unemployment rate stood at 3.5%, equaling its lowest rate in the past 67 years. A mere six weeks later, the outlook has shifted profoundly: Nearly ten million Americans filed for unemployment benefits in the past two weeks” (Baker et al. 2). The Pew Research Center also noted

“The rise in the number of unemployed workers due to COVID-19 is substantially greater than the increase due to the Great Recession, when the number unemployed increased by 8.8 million from the end of 2007 to the beginning of 2010. The Great Recession, which officially lasted from December 2007 to June 2009, pushed the unemployment rate to a peak of 10.6% in January 2010, considerably less than the rate currently” (Kochhar).

According to its analysis of government data, the current unemployment rate stood at 14.4% in America, which is over 4.4% higher than the rate of unemployment within 2007 to 2010 (Kochhar). With businesses being forced to close during the pandemic, employees were laid off and forced to file for unemployment. Businesses were also forced to cut down on employees in order to follow social distancing guidelines. So, with businesses retaining fewer employees, productivity rates declined. Products could not be produced nearly as fast with less manpower than previous to the pandemic.

Economic Revisions Outlook

With so many negative economic effects caused by Coronavirus, determining how to combat and revise the economy became a large debate. The 2020 presidential election displayed just how divided America was over how to resolve the economy. The Republicans placed forward President Donald J. Trump as their representative and Democrats put forward Joe Biden. Trump’s revision of the American economy consisted of opening the economy back up as soon as possible. He knew and was aware individuals needed jobs and a moving economy in order to rise from a declined economic standing. Biden’s economic revision consisted of increasing the tax on high earners and lifting the cap off wages in America. He also proposed a slow move towards opening the economy back up. Some common beliefs on revising the economy include looking to the past crisis’ for ideas and creating plans that will cover America long term rather than short term relief. For example, an article from McKinsey & Company, a major American consulting firm in June 2020 stated,

“Three themes emerge when we look at successful government responses to previous crises, whether epidemics, environmental disasters, or financial downturns. First, they prioritize human welfare and human capital. Second, because crises tend to accelerate pre-existing economic trends, the government responses that are effective often take that into account and plan long-term policy accordingly. Third, the most effective planning for longer-term economic recovery usually starts early, often alongside acute crisis-relief efforts” (Cheng et al.).

Keeping this excerpt in mind, improving the economy may look like running campaigns to stimulate the businesses within America’s economy, connecting the unemployed with talent seeking industries, and supplementing federal relief efforts. COVID-19’s effect on the economy caused massive political turmoil for both Trump and Biden when determining these factors and the best approach for economic revisions.

Conclusion

COVID-19 caused a massive negative impact on the economy that can be seen from the data presented in this chapter. This data was collected through science and technology and the economy has to be revised through through science and technology as well. Americans use technology daily to invest money into the economy, graph where the economy stands year-to-year, and to correct a declining market (in times like the pandemic). An article in CIO, a business technology magazine states “Technology has deeply affected the global economy and its usage has been linked to marketplace transformation” (Cavallo). Technology will be needed and used to rebuild the marketplace after Coronavirus devastated the American economy. Science and technology through graphs, charts, tests, and etc. are necessary to lift the economy from where the pandemic left it. Economic productivity rates need to be increased and that can only be done through scientific research and technology, with COVID-19 still present. The Stock Market and unemployment rates are also highly affected by what approach is taken to their technology needed to increase them. The COVID-19 pandemic took the world by surprise and had a massive impact on the economy and many individuals. Through rapid technological advancements science and technology worked to improve the American economy to avoid what happened during the pandemic of 2020. With the aid of science and technology, America’s economy can avoid harsh implications of future potential shutdowns, such as the closing of business, reduction in productivity and record low unemployment rates.

References

Baker, Scott R., et al. “COVID-Induced Economic Uncertainty.” National Bureau of Economic Research, 13 Apr. 2020, www.nber.org/papers/w26983.

Cavallo, Marco Antonio. “The Growing Importance of the Technology Economy.” CIO, 21 Dec. 2016, www.cio.com/article/3152568/the-growing-importance-of-the-technology-economy.html.

United States Census Bureau. “Small Business Pulse Survey.” 2020, https://www.census.gov/data/experimental-data-products/small-business-pulse-survey.html.

Cheng, Wan-Lae, et al. “Lessons from the Past on How to Revive the US Economy after COVID-19.” McKinsey & Company, 7 Aug. 2020, www.mckinsey.com/industries/public-and-social-sector/our-insights/lessons-from-the-past-on-how-to-revive-the-us-economy-after-covid-19.

Faulkner, Cameron. “Amazon Doubled Its Profit during a Pandemic.” The Verge, 30 Jul. 2020, https://www.theverge.com/2020/7/30/21348368/amazon-q2-2020-earnings-covid-19-coronavirus-jeff-bezos.

Kochhar, Rakesh. “Unemployment Rose Higher in Three Months of COVID-19 than It Did in Two Years of the Great Recession.” Pew Research Center, 26 Aug. 2020, www.pewresearch.org/fact-tank/2020/06/11/unemployment-rose-higher-in-three-months-of-covid-19-than-it-did-in-two-years-of-the-great-recession/.

Mutikani, Lucia. “What to Know about the Report on America’s COVID-Hit GDP.” World Economic Forum, 31 Jul. 2020, www.weforum.org/agenda/2020/07/covid-19-coronavirus-usa-united-states-econamy-gdp-decline/.

Pietsch, Bryan. “20.5 million people lost their jobs in April. Here are the 10 job types that were hardest hit.” Business Insider, 12 May 2020, https://www.businessinsider.com/jobs-industries-careers-hit-hardest-by-coronavirus-unemployment-data-2020-5.

Redman , Russell. “FMI: Online Grocery Sales Jumped 300% Early in Pandemic.” Supermarket News, 9 Oct. 2020, www.supermarketnews.com/issues-trends/fmi-online-grocery-sales-jumped-300-early-pandemic.

Images

“Unemployment Illustrations” by Pixabay is in the Public Domain

“Stock Exchange Financial Crisis” by Pixabay is in the Public Domain