We all undoubtedly look back wistfully to a time when we could go where we wanted and meet whom we wished. That was, of course, in the time before Covid – the ancient past we now call BC. It is hard to believe that here in the UK it is now exactly a year since the first lockdown was introduced. Following Boris Johnson’s announcement on 23 March 2020, the country changed overnight. Although there had been a reduction in activity ahead of the announcement, which was widely expected, on the morning of 24 March our once-bustling high streets resembled a post-apocalyptic film set in which our hero awakens to find everyone has disappeared. That morning, it felt as though London had become a ghost town – indeed the UK had become a ghost country.
Whilst a lot of economic activity simply stopped – we could no longer go to a restaurant or visit the cinema, for example – a lot of it was merely displaced. For many people their homes became a shelter from the ravages of Covid and for some a prison. More important economically, for many of us our homes also became our workplaces. This has had profound consequences for the shape of the economy and there have been some remarkable changes to the way in which it operates. Many of these changes are likely to be temporary but some will undoubtedly be permanent. What does the data tell us about how the economy – and indeed our lives – have changed since March 2020?
The big picture
Turning to the aggregate economic picture, over the last twelve months the UK economy has suffered an impact similar to that of a war. GDP in 2020 slumped by 9.9% – the biggest drop in over 300 years – whilst latest monthly GDP data to January show that output is still 10.6% below its October 2019 peak. Contrary to expectations, the labour market has held up relatively well. Although the unemployment rate has risen to 5% versus 3.9% a year ago, employment is down “only” 1.9% which is a considerably smaller decline than the collapse in output. In this sense the labour market support measures put in place by the government have done their job by preventing a much bigger labour market shakeout (so far, at least). Whilst evidence suggests that payroll employment has increased in each of the three months to February, it remains well below the January 2020 peak. What is more, two-thirds of the decline in jobs has been concentrated in the under-25s with over half occurring in the hospitality sector.
But the devil is in the detail
Over the past year we have had to cope with conducting our lives in a very different way compared to the pre-Covid era and economists have devoted a lot of time to looking at non-traditional data to measure changes in the composition of activity. One of the first things we noticed last year was the sharp decline in the number of people on the streets as they obeyed the call to stay home. This was reflected in a sharp drop in the number of car journeys and the numbers using public transport (chart 1). The number of car journeys, which dropped to 20% of normal levels as the lockdown was introduced, got back to more normal levels by the summer but rail journeys never returned to anything like BC levels. Similarly UK air passenger numbers as of last month were almost 88% below year-ago levels. This has major implications for companies that rely on fare-paying passengers. For example, the government has provided £10bn of funding to the railways whilst the London transport network has only been kept afloat thanks to a government grant which will entail measures to recoup additional revenue in future.
Traffic congestion data also reveal some interesting insights into commuter behaviour. A couple of things stand out from a year’s worth of hourly data on London traffic congestion. First, congestion levels have increased more quickly than the numbers travelling by train or bus. One takeaway from this is that people are more prepared to drive to work in order to reduce their Covid infection risk on public transport. Another noticeable trend is that the peak of the evening rush hour – at least in London – has shifted slightly forward from 5pm to 4pm as workers are encouraged to spend less time in the office during lockdown.
The retail sector has been hit hard by measures which have required most non-food establishments to close. Many of them will not reopen once restrictions are lifted. According to the Centre for Retail Research last year’s trends were a continuation of those in 2019 with almost 183,000 retail sector jobs lost versus 143,000 in 2019. As the CRR points out, the industry has been under pressure for years due to high costs and increased pressure on margins. But an additional threat has been the rise in online sales which have boomed over the last year. Prior to the lockdown roughly 20% of retail sales were conducted online. Latest data to January show that in the depths of the second lockdown the share rose to 36% (chart 2). This is a trend which is likely to remain in place.
By far the most radical economic change during the pandemic has been the huge shift towards working from home. According to ONS data, almost 50% of workers did so from the comfort of their own homes last spring – a figure which was replicated again during the most recent lockdown. As I noted in this post, although there are many advantages associated with working in an office – most notably the creation of network effects – many people do not miss the downsides, particularly the commute. One advantage of doing away with the commute is that it gives us extra time in bed. Evidence that we are starting our day a little later can be gleaned from electricity generation data which suggest that in the first 12 weeks of 2021 electricity generation measured at 0700 is running at an average of 2GW below corresponding levels a year ago, whereas generation over the rest of the day is broadly unchanged (chart 3).
Improvements in communications technology in recent years mean that it is now relatively straightforward to remain in contact with office colleagues without having to meet in person. As a result, many of us are convinced that remote working will be a part of the labour market in the years ahead, even if people do spend at least part of their week in the office.
The extent to which we quickly got used to dealing with this way of working can be seen from Google searches for the term “Zoom” in the UK. This hit a peak in late-March/early-April 2020 but subsequently tailed off quickly (chart 4) indicating that large numbers of people are now familiar with the technology. Looking more widely, web searches give an insight into the things people are interested in and Google’s analysis of UK search trends in 2020 is a mine of useful information (readers can go to the link and change the country of interest if they so wish). Not surprisingly, coronavirus topped the list but amongst the top-5 “how to” searches were “how to make a face mask” and “how to cut your own hair” (and for some bizarre reason “how to cook eel” made it to number six).
Last word
As Covid cases rise across Europe we are clearly not out of the woods, despite the fact that the UK numbers so far have been running in the right direction. However, after a year of restrictions on their way of life the vast majority of people are looking forward to a return to something closer to BC normality. Quite when we will get to that point is unknown. England’s chief medical officer, Professor Chris Whitty, has warned that there will “definitely be another surge” of Covid and while “the path from here on in does look better than the last year [there will be] bumps and twists on the road.” He went on to say that “the chances of eradicating this disease – which means getting rid of it absolutely everywhere – are as close to zero as makes no difference.”
In such a case, it is likely that the economic upturn will be slower than many suppose and in keeping with my prediction from a year ago, there will be a lot of economic scarring to contend with. The economy in the AD (after danger) era is likely to be very different to the BC world as the trends that have emerged over the last year become a permanent feature of the landscape.
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