The Economy Then and Now: State of the Post-Pandemic Recovery

By at 25 March, 2024, 7:02 am


by Raymond J. Keating – 

Politics is politics when it comes to the economy. The party in control, and their advocates, will claim that things are just great, and the party not in control, and their supporters, will declare that things have never been worse. And of course, we have the pandemic and its fallout looming large in the rearview mirror. Has the economy bounced back nicely from the pandemic or not? Again, answers usually come amidst political baggage.

How do we get around the political games? Actual economics. Specifically, let’s look at some key economic measures pre-pandemic compared to the latest take on each.

Before diving in, though, a dark cloud looming over our economy for more than 16 years now must be noted, which most elected officials, economists and analysts either are unaware of or choose to ignore. That is, since 2007, the U.S. has been slogging through one of the worst stretches of economic growth in our nation’s history – with or without a pandemic tossed into the mix. From 1950 to 2006, for example, real annual GDP growth averaged 3.6 percent in the U.S. From 2007 to 2023, it averaged a mere 1.8 percent – that is, half the historic average. If we factor out the effects of the pandemic – that is, the dive of 2020 and the bounce back in 2021 – the annual average still came in at 1.9 percent. The U.S. economy broke most clearly from its historic growth norm at the start of the “Great Recession” in 2007, and has yet to truly recover. That should trouble everyone, but again, few seem all that interested.

Having noted this grim-but-important point, let’s look at where the U.S. economy is now versus pre-pandemic according to key measures.

Real GDP. Over the past two years, when the economy moved beyond the pandemic-driven dive and the immediate bounce back, real annual GDP growth came in at 1.9 percent in 2022 and 2.5 percent in 2025, for a two-year average of 2.2 percent. That rate of growth was ahead of the 1.8 percent average from 2007 to 2019, for example, but well below the historic (1950-2006) average of 3.6 percent.

In addition, over the four years from the fourth quarter of 2019 to the fourth quarter of 2023 (latest data), real GDP (seasonally adjusted, annual rate) grew by only 8.2 percent.

Real Business Investment. Let’s look at business investment in the GDP data – that is, real nonresidential fixed investment – as it is important to current and future economic growth. Real nonresidential fixed investment grew by 5.2 percent in 2022 and 4.4 percent in 2023, for a two-year average of 4.8 percent. That average annual growth rate came in ahead of the 2007-2019 average of 3.8 percent, but trailed the 1950-2006 average of 5.1 percent.

Also, over the four years from the fourth quarter of 2019 to the fourth quarter of 2023 (latest data), real nonresidential fixed investment (seasonally adjusted, annual rate) grew by 11.2 percent. That was better than overall GDP growth, but hardly robust.

Trade. Trade data, of course, feature two major areas. Exports capture growth and opportunities for U.S. entrepreneurs, businesses (the majority being smaller businesses), investors and workers in the international marketplace. And imports capture inputs to domestic businesses – from retailers to manufacturers – and more choices for consumers.

Real exports grew by 7.0 percent in 2022, and slowed markedly to 2.7 percent in 2023, for an average of 4.9 percent. That average annual growth rate came in ahead of the 2007-2019 average of 3.5 percent (with 2022 running ahead and 2023 behind), but trailed the 1950-2006 average of 5.9 percent.

Over the four years from the fourth quarter of 2019 to the fourth quarter of 2023 (latest data), real exports (seasonally adjusted, annual rate) grew by a woeful 2.6 percent. That was a grim performance.

As for imports, real imports grew by 8.6 percent in 2022, but then declined by 1.6 percent in 2023, for an average of 3.5 percent. That average annual growth rate came in ahead of the 2007-2019 average of 2.4 percent (with 2022 running ahead and 2023, obviously, far behind), but trailed the 1950-2006 average of 6.8 percent.

Over the four years from the fourth quarter of 2019 to the fourth quarter of 2023 (latest data), real imports (seasonally adjusted, annual rate) grew by 13.6 percent. At first glance, that was a better performance compared to exports and overall GDP, but again, the decline in 2023 must be kept in mind.

Inflation. As measured by the Consumer Price Index, inflation has been a significant problem since early 2021. Since the “Great Inflation” of the 1970s and very early 1980s, and its unwinding during the 1980s, inflation had been quite tame. From 1990 to 2019, for example, annual CPI inflation averaged 2.4 percent. From 2021 through the first two months of 2024, annual CPI inflation averaged 5.6 percent.

Now, assorted factors come into play here, but in the end, inflation, i.e., a sustained increase in the general price level, is a monetary phenomenon. Loose money provides the foundation for inflation to ignite, and the Federal Reserve has been running loose money without precedent in the history of our country (i.e., a fantastic increase in the monetary base (currency in circulation plus bank reserves)) since the late summer of 2008. The pandemic provided the match, thanks largely to supply chain constraints and disruptions, government checks that ginned up demand, and again, that loose money. While inflation has calmed some since mid-2022, it remains too high and volatile, and uncertainty about the direction of monetary policies and inflation persists.

Source: Federal Reserve Bank of St. Louis, FRED

Labor Market. We hear a great deal about the labor market, including that we face a tight labor market. That is true. However, the reasons that the labor market is tight now, and will be for the foreseeable future, garner little attention, namely, an aging and stagnating population.

As for the key measures to look at regarding the labor market, the unemployment rate usually gets the most attention. In reality, though, the unemployment rate is a dubious measure, as it can be misleading as to what’s going on underneath the topline number. That is, a certain unemployment rate can tell us very little about employment and the labor force.

Therefore, the measures packed with far greater relevance are the labor force participation rate, and the employment-population ratio. So, where do these stand?

The latest numbers are for February 2024, and in that month, the labor force participation rate stood at 62.5 percent. That was still down from the 63.3 percent in February 2020. And as noted in the following chart, we’ve been experiencing a decline in the labor force participation rate since 2000.

Source: Federal Reserve Bank of St. Louis, FRED

As noted before, we have been experiencing an aging and stagnating population, so what’s been happening with labor force participation within the key working age demographic of 25-54 year olds? In February 2024, the labor force participation rate for this group stood at 83.5 percent. That was up from 83.0 percent in February 2020. As noted in the following chart, though, we’ve been experiencing a long-run, slight decline in the labor force participation rate since 1999.

Source: Federal Reserve Bank of St. Louis, FRED

Getting to the employment-population ratio, it registered 60.1 percent in February 2024, and that was down compared to the 61.1 in pre-pandemic February 2020. The long-run decline since 2000 also can be seen in the following chart.

Source: Federal Reserve Bank of St. Louis, FRED

Following is a look at the employment trends among 25-54 year olds. The February 2024 level of 80.7 percent was largely unchanged from the 80.5 percent in February 2020. Again, the slight decline since 2000 is evident.

Source: Federal Reserve Bank of St. Louis, FRED

And finally, it’s worth considering the trend in employment trends among 25-54-year-old males. The December 2023 (latest data) employment rate for this group registered 86.1 percent. That was down slightly from the February 2020 level of 86.4 percent. What’s most striking in the following chart, though, is the long-run decline in employment among 25-54-year-old males.

Source: Federal Reserve Bank of St. Louis, FRED

Industrial Sector. The industrial sector, including manufacturing, not only has failed to recover to pre-pandemic levels, but to levels of production achieved before the Great Recession.

The Federal Reserve’s index of industrial production – that is, the actual physical output of the manufacturing, mining and utility sectors free from price changes – registered 102.3 in February 2024. That compared to 101.6 in February 2019. However, in August 2018, it came in at 104.1. It also must be noted that in December 2007, this index also stood at 102.3. That means no growth for more than 16 years. (See the following chart.)

Source: Federal Reserve Bank of St. Louis, FRED

As for manufacturing production (chart below), the index level stood at 99.8 in February 2024 versus 99.1 in February 2020, 102.0 in September 2018, and over the longer haul, 106.4 in December 2007.

Source: Federal Reserve Bank of St. Louis, FRED

The bottom line is that the U.S. industrial sector has stagnated, at best, with manufacturing production declining over the past 16-plus years.

Entrepreneurship. Entrepreneurship drives innovation, and is the vital source for growth in the economy, incomes and jobs. And entrepreneurship has long been a distinctive competitive advantage for the U.S. in the global economy.

So, how has entrepreneurship fared given the pandemic? Let’s consider key measures on the number of businesses.

First, the U.S. Census Bureau offers employer and nonemployer data. However, these numbers suffer from considerable lags. In terms of employer firms, there were 6,102,412 in 2019, and that moved to 6,140,612 in 2020, and to 6,294,604 in 2021. So, the U.S. experienced actual growth in the number of employer firms during the pandemic. That is astounding.

As for nonemployer businesses (i.e., one-person businesses), in 2019, these registered 27,104,006, and then came in at 27,151,987 in 2020. The 2021 data are not yet available. However, seeing growth from 2019 to 2020 is amazing.

More timely numbers can be found in self-employment data from the U.S. Bureau of Labor Statistics. These numbers capture full-time entrepreneurs, that is, individuals who identify themselves as full-time business owners, and these businesses can have employees or be one-person operations. Based on these numbers (Table A-9), the level of full-time entrepreneurship in the U.S. actually has, at best, stagnated over the past decade-and-a-half – with a mixed story post-pandemic.

The data cover unincorporated and incorporated self-employed. The incorporated monthly data is not seasonally adjusted, so to get a full picture of full-time entrepreneurship, we need to look at the combined annual averages for self-employed (that is, incorporated plus unincorporated).  Also, the incorporated data only go back to 2000.

Given these parameters, total self-employed had hit a high of 16.15 million in 2007. It subsequently declined with the Great Recession to 14.58 million in 2011. The subsequent recovery was sluggish, at best, getting back to 15.72 million in 2019. During the pandemic year of 2020, self-employment dropped to 15.53 million. However, growth was fairly strong in 2021 and 2022 – hitting 16.07 million in 2021 and 16.53 million, a new annual high, in 2022.

But in 2023, total self-employment declined to 16.41 million. Unincorporated self-employed for the year declined (from 9.87 million in 2022 to 9.73 million in 2023), while incorporated self-employed inched up (from 6.66 million in 2022 to 6.68 million in 2023).

In the end, total self-employment in 2023 (again, annual average of 16.41 million) was up versus pre-pandemic 2019 (annual average of 15.72 million), but did not substantively grow since 2007 (annual average of 16.15 million). For good measure, it needs to be recognized that the population has increased over this period. Therefore, full-time entrepreneurship as a share of the noninstitutional civilian population registered 7.0 percent in 2007, and declined to 6.1 percent in 2023.

Conclusion. The story on the U.S. economy since 2007 has been one of rather stark under-performance overall. As for rebounding from the pandemic, while various measures of activity have recovered and surpassed where matters stood before the pandemic hit, this recovery has been underwhelming rather than robust. Keep in mind that the historic averages mentioned above, such as real GDP growth, include recessions. The average for real growth during periods of recovery and expansion is much higher (exceeding 4 percent in terms of real annual average GDP growth). That makes the economy’s post-pandemic performance even more disappointing. It certainly can be argued that coming out of a steep economic decline, and with the need to strengthen and invest in supply chains and production, it was reasonable to expect recent economic growth to well exceed the historic average. But that has not been the case.

Our elected officials need to weigh the economic realities and challenges that the data are revealing – indeed, including the numbers going back to 2007 – and engage in thoughtful, informed debate and discussion over what pro-growth policies make sense to revitalize entrepreneurship, for example, and to get the U.S. back to strong and sustained economic growth. That is, politics needs to be put aside in favor of sound economic policymaking.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist, The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist and The Weekly Economist III: Another 52 Quick Reads to Help You Think Like an Economist.


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