Recovering from COVID

The COVID business cycle was unique. The recession was by far the deepest and shortest in the U.S. postwar record and the recovery was remarkably rapid. The cycle saw an unprecedented reallocation of employment and consumption away from in-person services towards goods that can be consumed at home and outdoors. This paper provides a simple empirical model that attributes these and other anomalies in real economic activity to a single unobserved shock. That shock is closely connected to COVID deaths, and diminishes in importance over the expansion, consistent with self-protective measures like masking, COVID fatigue, and eventually the availability of the vaccine. The COVID shock and anomalous COVID dynamics largely disappeared by late 2022. It appears that macrodynamics have returned to normal and that the structural shifts wrought by the pandemic have had limited effects on the underlying economic trends of key indicators, despite notable changes like the prevalence of remote work. The greatest macroeconomic legacy of the COVID business cycle has been on the national debt.