On June 8, 2020, the National Bureau of Economic Research (NBER) announced that the United States entered into a recession in March 2020, a result of the Coronavirus Disease 2019 (COVID-19) pandemic. To prevent the spread of COVID-19, lockdown orders were issued in many parts of the country and travel restrictions were put in place. These measures, along with general fears of the coronavirus, caused swift and large aggregate demand and supply shocks that resulted in the deepest economic downturn the United States has seen since the Great Depression.

In the post-World War II era, the peak unemployment rate of 14.7% in April 2020 was the highest recorded monthly rate, and the second quarter annualized decline in gross domestic product (GDP) of 31.4%, driven by decreases in personal consumption expenditures and gross private fixed investment, was the highest recorded single quarterly decline in real GDP. The pandemic caused relatively low inflation in the aggregate, and prices for certain goods, such as gasoline, decreased by double-digits. Although the economy has improved since the second quarter of 2020, including the highest single quarterly increase in GDP (33.1% annualized) in the third quarter and the decline in unemployment to 6.1% in April 2021, many economic indicators show that economic activity has still not fully recovered. In some cases recovery appears to be slowing. When the public health crisis began, many workers were laid off on temporary furloughs, but since then, many of those temporary job losses have become permanent, leading to concerns that unemployment may remain elevated for several years.

Other indicators are harder to parse. The personal saving rate in the United States increased to a peak of 33.7% in April 2020 and remains elevated from pre-pandemic rates. Although a higher saving rate means lower consumption, which could hamper growth in the short run, it could also translate to higher investment levels, which would contribute to long-run growth. Labor productivity, a measure of labor efficiency, also increased in most major sectors in the beginning of the pandemic, which would tend to positively affect short-run growth. This pattern is consistent with changes in productivity seen during recessions since the 1980s. It is likely caused by employers’ ability to furlough or lay off their least efficient workers first, resulting in a temporary increase in capital per remaining worker. Following this initial increase, labor productivity fell in most sectors by the fourth quarter of 2020. Some longer-lasting changes could be possible for specific groups of individuals, such as those who work for industries that have been hardest hit by the pandemic. Questions of changing consumer preference and the potential for the saving rate to remain high could result in changing landscapes for many businesses and for the nature of work itself.

Over the course of the pandemic, Congress approved six major laws—the Coronavirus Preparedness and Response Supplemental Appropriations Act 2020 (P.L. 116-123); the Families First Coronavirus Response Act (P.L. 116-127); the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136); the Paycheck Protection Program and Health Care Enhancement Act (P.L. 116-139); the Consolidated Appropriations Act, 2021 (P.L. 116-260); and the American Rescue Plan Act of 2021 (P.L. 117-2)—to address the effects of COVID-19 and provide direct assistance to households and businesses. In addition, the Federal Reserve lowered the federal funds rate (the overnight interbank lending rate), increased asset purchases, revived and created new emergency credit facilities, and encouraged the use of the discount window. These policies mitigated the decline in aggregate economic conditions in the short run. Of note, total personal income increased and remains elevated from February 2020 levels. The three rounds of economic impact payments (sometimes referred to as stimulus checks) greatly contributed to personal income in the first few months of the pandemic. In April 2020, January 2021, and March 2021, the payments made up more than 12%, 7%, and 16% of total personal income, respectively, and contributed to increases in the level of total personal income. The overall increase in personal income was very large relative to normal fluctuations in personal income, especially given the unprecedented decreases in employment and GDP in the wake of COVID-19.

There have been some notable debates about potential adverse effects of pandemic-related legislation, including whether the stimulus payments will cause inflation and whether they will add too much to the debt. The legislation is expected to boost GDP in the short term, and the Federal Reserve projects that, in part due to the relief and stimulus, real GDP will increase by 6.5% in 2021. However, some are worried that the economy will grow too quickly and cause overheating. Inflation has picked up in recent months but remains within target for the Federal Reserve’s goal of an average of 2%.