TD Senior Economist Shares His Keys for a Post-COVID-19 Economic Recovery

woman opening up her business

June 09, 2020 - COVID-19 Small Business & Commercial DC, DE, MD, VA Florida Maine New England New Jersey, New York and PA North and South Carolina Georgia

Small business success and safety measures are key to our nation's financial well-being

A lot has been said about the importance of the Paycheck Protection Program (PPP) in terms of getting small businesses the funds they need to stay afloat and help their employees during this unprecedented time.

But TD Senior Economist James Marple believes the success of PPP and survival of small businesses could be even more vital to the country's overall health and one of the major keys to COVID-19 recovery.

"The economy is obviously in a funk," he said during a call with TD's Corporate and Specialty Banking leaders.

With unemployment north of 13%, the roughly 10% decline in the economy in the second quarter of 2020 (close to 40% annualized) is a number he's looking closely at in terms of what's required for a recovery, he said.

"It's greater than anything we saw during 2008's Great Recession," he explained. "You have to go back to the Great Depression to see such a shock in economic activity."

Though these are obviously troubling numbers, he said the root causes between the Great Depression, the Global Financial Crisis and COVID-19 couldn't be more different, given this is a health crisis and that we are starting to see some states gradually open back up.

He also believes the safety measures put in place by the government are what may avert another 2008, including stimulus checks, interest rate drops and the PPP program.

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But long-term recovery success depends on two things – that the number of new COVID-19 cases continue to decline and PPP funds get to the right businesses, who need them most.

On PPP, he said, "The success of that program is very important to having the economy come back in short order, rather than a prolonged economic downturn."

In fact, he believes that the failures of small businesses throughout the country could mean a much longer recovery effort. Big name businesses are probably going to be OK, he said. It's the failure of small- and medium-sized business, that we need to watch and do what we can to support.

"That’s where the growth comes from," he said.

In fact, according to the Small Business Administration, small businesses create two-thirds of new jobs and account for almost 44% of overall US economic activity.

Small Business Graph

At the core of the PPP program was the possible benefit of these loans being forgiven under certain circumstances, which are crucial to struggling small businesses. Among these criteria include using the funds for payroll, rent, mortgage interest or utilities.

One of the stipulations has been bringing back furloughed employees within a certain time frame or keeping employees on payroll after obtaining the funds. Some businesses that were funded early on have been struggling as they try to wait to bring back employees until economic shutdowns have lifted. This is something to keep an eye on, especially as the government debates on extending that use time frame.

As for the shape of a possible COVID-19 recovery, he said a V-shaped recovery - where things could spike back up quickly to healthy levels we saw before economic shutdowns – is likely "out of the question." He doesn't expect to see the level of activity that we saw prior to COVID-19 fully recovered till the final part of 2021 -- at least.

He predicts more of a U-shaped curve, one where we eventually get back to normal but one that takes time. While not the baseline outlook, there is also a possibility of a W-shaped recovery, where things get better in the short-term, but then fall again if there is a second wave of cases or broader business failures.

Social distancing and safety measures will be key to making sure this kind of roller-coaster recovery doesn't happen.

"Another thing to note is state and local governments have been hit on the revenue side," he said, adding that increased support for healthcare systems and income-support programs like unemployment have tapped their financial holdings. He said there's a case to be made to help these local governments economically as we continue to strategize recovery on a national level.


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