Recap: Dimensional Fund Advisors’ Webcast on COVID-19 and the Economy

To stay updated on the current outlook for the markets and the US economy, leading economist Edward P. Lazear, formerly chair of the Council of Economic Advisors under President George W. Bush and currently Cox Professor of Economics at Stanford University, discussed the current unemployment statistics and what they tell us about where the US economy is headed with Dimensional Fund Advisors.

Lazear also shared the latest information on the course of the pandemic in the US and related implications for re-opening the economy. Finally, he analyzed the prospects for economic recovery and expectations for how long it will take to get the US fully back to work and increase productivity. In addition, he answered many clients’ questions about the best ways to move forward through the current rapidly changing climate for business and investment.

Hosted by Mark Gochnour, head of Global Client Services for Dimensional Fund Advisors (DFA)and Gerard O’Reilly, DFA’s co-CEO and Chief Investment Officer, the webcast offered authoritative perspectives on the urgent issues we all face.

There is no getting around the fact that the economy is experiencing a deep contraction this quarter; it’s an event that many economists and experts have expected since the pandemic first swept across the country in March. While some industries (for instance, education and professional services) have been able to function remotely in light of widespread stay-at-home orders, other industries — such as transportation, leisure, and hospitality — have shut down completely, which significantly hampers economic growth.

But there is reason to believe that once the pandemic dissipates, businesses reopen, and more Americans return to their day-to-day routines, the economy will rebound quickly and strongly. In his talk, Lazear helped clarify the current economic downturn and explained why our current situation is different from other crises, such as the 2008 financial crisis.

“This is a very different phenomenon,” Lazear said, noting that our current economic downturn is supply-based, as opposed to demand-based, since the COVID-19 pandemic has shut off the supply of business activity and labor to the economy. Supply-based downturns are more “V-shaped,” in that they go down quickly, and come up quickly. “In some sense, I would expect demand to be higher in the future, not lower. The reason for that is because there is a good bit of pent-up demand right now,” Lazear said, citing that many Americans would be actively participating in the economy — for instance, eating out at restaurants or frequenting shops — if not for social-distancing and stay-at-home orders, especially since the economy was on strong footing prior to the pandemic taking place.

Strong prospects for economic recovery don’t change the fact that this downturn will have long-lasting effects, such as a reduction in human capital and productivity loss. But as Lazear and other economists (such as Federal Reserve Chairman Jerome Powell) have mentioned, the sooner we are able to get the pandemic under control — either by reducing the spread of transmission through continued social distancing or treatments — the sooner the economy will be able to bounce back.

Stay Safe, Stay Home, Stay Hopeful!