REGIONAL- Business closures and stay-at-home orders imposed in mid-March to combat the spread of the coronavirus sent the country’s economy reeling into the steepest and shortest economic …
REGIONAL- Business closures and stay-at-home orders imposed in mid-March to combat the spread of the coronavirus sent the country’s economy reeling into the steepest and shortest economic recession in history, and it’s going to take until 2023 to fully bounce back.
That’s the message delivered by economic experts recently in a video conference sponsored by the Minnesota Chamber of Commerce. Chamber Executive Director Doug Loon said it was important for businesses to begin to get a handle on a road map to recovery.
“The more we understand, the better we’re going to be to bring our state through this very difficult time,” he said. “It’s going to be a long road and the more we know the more equipped we will be to recover.”
Jim Diffey is Senior Director of Industry Services and Consulting for Economics for IHS Markit, an international company that provides economic information and analytics for businesses and governments, including Minnesota state government. He set the stage by reviewing a series of graphs, charts, and talking points detailing the current impact of the recession and the company’s projections for recovery.
Diffey said the mid-March shutdowns caused a massive 15.1-percent drop in consumer spending in April, May, and June, and projected that overall consumer spending for 2020 will decline 8.6 percent from 2019.
When consumers stop spending, businesses have to cut back on the goods and services they produce. Gross domestic product, the value of all goods and services produced in a year, is the primary indicator of the health of the economy, and that number is projected to be down by 8.1 percent for 2020. It’s a hit that won’t be recovered from quickly.
“Our recovery takes until mid-2022 to get back to the previous level of 2019 gross domestic product,” Diffey said.
Of additional concern, Diffey said, is the fact that employment lags behind GDP during periods of recovery.
“We don’t get to unemployment rates below five percent until 2022,” he said. “Full employment isn’t achieved until 2023.”
Fueled by a drop of nearly 50 percent in employment in leisure and hospitality jobs and significant losses in every other business sector, Minnesota was in the top 20 percent of states in terms of job losses, Diffey said.
The Duluth metropolitan area was the hardest hit in the state, with 13.6 percent fewer people employed in May 2020 versus May 2019, higher than the state average of 12.8 percent.
Diffey noted that the pandemic accelerated several trends that were already underway, including more people working and shopping from home, which leads to declining demand for office and retail space.
Invited Minnesota panelists offered their observations about Diffey’s presentation and thoughts about economic recovery.
State economist Laura Kalambokidis was the first to speak.
“We have Minnesota recovering to pre-recession levels quicker than IHS,” she said.
Kalambokidis noted that not all households experience the same effects from the economic downturn, with lower-income workers and their families suffering more.
“The downturn has the greatest effect on those least able to bear it,” she said.
One of Kalambokidis’s responsibilities is to project state tax revenues, and she said that the budgets developed for the 2022-2023 biennium will certainly have to contend with a revenue shortfall.
“The sooner those problems are addressed the easier they will be to solve,” she said.
King Banaian, dean and professor of economics in the School of Public Affairs at St. Cloud State University, emphasized that manufacturing job losses come after those in the service sector, such as leisure and hospitality, and therefore may take more time coming back.
An analysis of economics in the central part of the state, that included feedback from manufacturers and business owners, suggested they were less optimistic than Kalambokidis about a faster recovery, Banaian said.
“The majority of them said (the downturn) wouldn’t end until the second half of 2021,” he said. “I think everybody here is believing employment growth is going to be slower. One thing we got from our panelists is the hesitancy for capital spending.”
Banaian characterized their responses overall as more bleak than at the outset of the Great Recession in 2009.
Will Hale, chief of global operations for Cargill, said that economic recovery can’t be separated from the future course of the coronavirus pandemic.
“We keep looking at this as if it’s all going to come down to getting the virus under control,” he said.
Diffey noted earlier that his projections reflected improvement in pandemic conditions in the second half of the year, and that worsening conditions were among numerous factors that could impact outcomes.
Hale said Cargill, a global company, was dealing with the coronavirus outbreak well before its arrival in the U.S., allowing them to develop health and safety responses elsewhere that could be utilized in U.S. operations.
“We are the benchmark for safety,” he said.
Panelist agreed that the resilience of Minnesotans will be a positive influence in the state’s overall recovery, but Kalambokidis said that patience will be needed as the state adapts to new opportunities in the post-pandemic period.