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KALAMAZOO, Mich.—COVID-19 upended life as we know it and sent the global economy into a tailspin. Unprecedented business shutdowns halted production in many areas, led to layoffs in others and left supply chains in a lurch. Now five months in, there are signs of hope the U.S. economy is on its way to recovery. Unemployment is decreasing, jobs are being created and investors are optimistic.

That's the good news. But according to expert faculty in Western Michigan University's Haworth College of Business, restoring the pandemic-perturbed economy won't happen overnight, and it comes with significant caveats.

"Roughly one-third of the U.S. economy revolves around, basically, four states: California, Texas, Florida and New York," says Dr. Sime Curkovic, professor of management. "(There are) a lot of unknowns, but it's not going to serve us well if states that account for over a third of our economy are now struggling with COVID. What happens if there's a second wave? What if vaccines don't get approved until next year? If vaccines do get approved, what if the effective rate is only 50%?"

Since the pandemic first appeared in the United States, the country has lost approximately 30 million jobs. America's gross domestic product—essentially what the economy is worth—shrunk 33% from April to June. That's a deeper plunge than the Great Depression.

"That's the worst in two centuries, actually. When you look at the prior declines in the economy, there are certain things that have worked," says Dr. Devrim Yaman, professor of finance and associate dean of undergraduate programs in the Haworth College of Business. "(Those include) investing in people and the health of people, and focusing on the industries that were already failing, because those industries are more vulnerable."

Manufacturing Hope

A leading indicator of America's economic health is the ISM Manufacturing Index. It measures the activity level of purchasing managers to determine things like production, shipment levels and inventories, and assigns a monthly numerical rating. If the number is above 50, manufacturing is expanding versus the previous month.

"If you look at the ISM Manufacturing Index over the last several decades, it kind of tells you what's going to happen a few months down the road or a year down the road. Right before the Great Recession, the ISM Manufacturing Index was under 50 for some 30 months in a row," says Curkovic, adding that after the Great Recession, the U.S. economy grew every month for 131 months up until March 2020.

"So, I think when bad things happen globally or in our economy, we tend to recover very quickly. Think of all the crazy stuff that happened during that time period: the dot-com bubble burst, the real estate bubble, the Great Recession, the banking crisis, September 11, (wars in) Iraq and Afghanistan, corporate scandal with Tyco and Enron. The list is endless. We have an economy that's capable of growing to crank out as many jobs as we need to put people to work that want jobs."

The reason the ISM Manufacturing Index is so influential is that manufacturing drives the American economy. While only about 10% of the U.S. workforce is in the manufacturing sector, each of those jobs accounts for about 10 jobs in the service sector. The index has been above 50 now for approximately two months—a sign that manufacturing is on the upswing and jobs are being added. If that trend continues, Curkovic predicts the U.S. could potentially see a complete economic recovery in 12 months.

"We should look forward to the future given that we've only been a few months into this and we're already above 50 (on the ISM Manufacturing Index) and tons of jobs are being created," he says, also pointing out that a driving factor in keeping the positive momentum will be the global economy and ability of other countries to recover post-COVID-19. "We can't stand alone in a global economy."

Investing in future success

In the short term, Yaman says, the best way to encourage positive growth is to invest in services and technologies aimed at studying, controlling and, if possible, eliminating the novel coronavirus.

"Really without the social distancing, wearing our masks and investing in a vaccine, our economy will not recover. We know that. So, it looks like the best places to invest and pay attention to are the COVID-related areas."

It's also important to focus on policies and decisions with long-term sustainability in mind, rather than immediate solutions that offer only short-term relief. An economic stimulus is important, for instance, but not sustainable over time.

"A lot of individuals are in declining industries. How do we relocate those individuals so that we can have them work in industries where there is more need? How do we support innovation?" Yaman says. "This is the time to make more investments in research and development throughout the country, as well as in companies, and particularly investing in more education (for workers)."

Education will be essential for those workers whose jobs are eliminated as industries shift to accommodate the needs and lifestyle changes of a post-COVID-19 world. While many jobs in the hospitality industry have been lost, for instance, sectors like health care and engineering are seeing an exponential increase in demand.

"This pandemic is forcing all of us to be more efficient and to look at things in a different way, just to see in the long run how we can make ourselves better," says Yaman. 

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