Chief economists say the pandemic has permanently changed the U.S. workforce

A December 2021 outlook report from the Securities Industry and Financial Markets Association suggests that the pandemic will have an enduring impact on the U.S. economy. Pandemic-driven disruptions have left an indelible imprint on the country’s workforce, and some aspects of the labor force are unlikely to ever return to pre-COVID norms.

Key findings

Conducted Nov. 15 to Dec. 3, SIFMA’s semiannual survey polled the chief economists of 27 global and regional financial firms and compiled their economic expectations for the U.S. economy. Among the survey’s findings:

• More than 70% of respondents expect the number of employees working in offices will never return to prepandemic levels. 
• Respondents cited a lack of child care; school closures; employees opting to work from home; lingering health concerns; and fears of contracting the virus as factors preventing a large-scale return to the office.
• Some 47% of respondents expect an increase in the number of consumers returning to high-density activities after vaccines are distributed en masse but that this number will be nowhere near prepandemic levels.
• Over 90% of the participating economists expect a lasting or permanent negative impact on the hotel industry, and 83% expect the same for the airline industry, due to changes in consumer behavior and expectations.
• Some 86% of respondents favor a vaccination requirement for travel, a return to physical offices and the reopening of crowded events such as movies, plays, concerts and sports. This figure is a significant increase compared to SIFMA’s midyear survey.
• Less than half — 43% — view the continuation of COVID-19 safety measures as a drag on the ability to return to normal.

Macroeconomic trend forecasts

In addition to anticipating lasting impacts from the pandemic on the labor force, the survey’s participating economists also envision the economic trends listed below.

Inflationary pressures: The inflationary pressures caused by supply chain issues will be transitory, in the view of respondents. Nearly half (47%) expect a resolution to supply chain constraints by the second quarter of 2022. However, wage pressures, which tend to be stickier, are likely to be longer-lasting.

The survey forecasts the overall consumer price index to be 6.5% for 2021, up from 1.1% in 2020, and core CPI, which excludes food and energy, at 4.9% for 2021 versus 1.6% in 2020. In 2022, these levels are expected to fall to 2.8% for headline CPI and 3% for core CPI.

Tighter monetary policy: In light of the above inflation forecasts, respondents expect a tighter monetary policy in 2022, but they differ widely on the timing for the first Fed rate hike. 

Some 29% of respondents expect the first hike in 2022’s second quarter, 29% expect it in the third quarter and 29% expect it in the fourth quarter. Meanwhile, approximately 12% expect the first rate hike won’t come until 2023.

Contracting labor force: Some 46% of respondents expect the labor force participation rate will never return to its prepandemic levels. An equal percentage expect the labor force participation rate will return to its roughly 63% prepandemic average after 2022.

GDP growth: The median forecast for 2021 for annual GDP growth Q4 over Q4 was 5.2% and 3.5% for 2022 — much lower than the estimates reported in SIFMA’s midyear survey.

More than 80% expect a long-term potential GDP growth rate of 1.5% to 2%, with 53% stating this is lower than pre-COVID estimates.

Unemployment rates: Based on the fourth-quarter average, the unemployment rate was anticipated to close 2021 at 4.5% and fall to 3.5% in 2022.