Economists struggle to put numbers to virus impacts
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Richard Wobbekind is known throughout the Boulder Valley and Northern Colorado for his economic forecasts. When it comes to the wide-ranging impact of the coronavirus on the region’s economy, the prediction from the chief economist at the University of Colorado Boulder’s Leeds School of Business is succinct:
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“Six months of not very pretty.”
Calls for “social distancing” to help curb the spread of COVID-19 have hit big and small businesses and institutions alike — from halts to in-person classes at area colleges and universities to closures of some personal-services businesses such as hair salons, health clubs and massage providers. On Monday, the Lincoln Center in Fort Collins announced that it would be closed through March 27, and late last week, the Longmont Bingo Alley told regular customers it would be closed “until further notice.”
“I think what will be hit the hardest in our region is the tourism industry and the related retail that goes with it,” Wobbekind said. “Being a tourism place as we are, Colorado’s certainly going to feel the impact — not just skiing but conferences being called off and all the sporting events.”
The cycle of boom and recession is familiar to economists, but Martin Shields, an economics professor at Colorado State University in Fort Collins, said there’s little in economics textbooks that can serve as a guide through this much uncertainty — where so much of society simply is shutting down with no clear idea of when things will return to some semblance of “normal.”
“How do we model this? It’s every sector,” Shields said, “and we don’t really have information on how hard they’re hit. This is pretty unprecedented on such a large scale.”
While citing impacts across the spectrum, both economists focused on the hospitality industry in this region.
“People are going to stop traveling, going out. They’re canceling weddings, anything that draws a crowd, all these human-contact types of industries,” Shields said. “CSU’s shut down, so the kids aren’t coming back, they’re not shopping at Old Town, not going out. The hotels aren’t going to need their housekeepers, their desk staff, so those people won’t get paid — and then they’re not going to do their shopping.”
With a dropoff in retail sales comes a loss of local sales-tax and lodging-tax revenue, Wobbekind and Shields said, and the result will be cutbacks in government services.
Less travel could send ripples through the energy sector as well.
“Through January, oil prices were already down significantly year-over-year,” Wobbekind said. “What’s going on in the energy markets is certainly not going to make that any better with oil prices being so low. Coronavirus is clearly slowing worldwide growth, probably cutting it in half — from 2 percent to 1 percent. Slower global growth is certainly going to consume less energy.”
Hovering over the whole picture is the uncertainty, they said.
“How long this lasts is the critical element,” Wobbekind said. “If we’re talking a couple weeks it’s one thing; if we’re talking two months, it’s another. I see today that Mayor (Michael) Hancock just officially closed the restaurants in Denver for two months. I would have thought maybe a little wait-and-see was in order, but who knows?”
“That’s the tough thing,” Shields added, noting that government actions so far might be of minimal help.
“Every time, they’re telling us it’ll last longer,” he said, “and will the stuff they’re doing help? The Fed kind of shot their cannons today, dropping interest rates to zero, but it’s not really a problem of people not buying cars and houses, so interest rates aren’t going to have much of an impact. People are afraid.
“Payroll tax cuts are great for the people who are working,” Shields said, “but it’s the people who lose their jobs who are going to be hit the hardest.”
Wobbekind did see some positive notes, however. The northern Front Range weathered the Great Recession better than many other parts of the country, he said, and “we don’t seem to have the excesses in the financial system that we had then. Even with the big selloff in the stock market, the banking system seems to be on solid footing.
“Part of what buffered the last go-round, too, are our universities, our labs, aerospace, tech — long-term types of things. Those are important businesses that you don’t see going away, and that buffers us more than the average place. A lot of work can be done remotely and people are set up to do it in their homes. That part of the economy is set up to not lose a lot of productivity compared with face-to-face retail.
“It’s more a case of small businesses, and then the targeted things like airlines and hotels taking big hits,” he said.
Wobbekind said he hopes to see short-term loans to prop up small businesses “until this recovers. Once we get a solution to this, or if it starts to calm down, our fundamental economy is in pretty good shape. By the fourth quarter, if things get worked out, we should start to recover. I don’t think there’s going to be an 18-month or a 30-month recession.”
In the meantime, Shields said, governments need to figure out how to help lower-income people who will lose hourly pay, tips, commissions and other sources of income.
“How do we protect those who are sick or who live paycheck to paycheck? There’s talk of putting money directly in their pockets — sending everybody a check for $1,000,” he said. “Maybe that would help them make their rent for awhile.”
After the 2001 terrorist attacks, government told consumers, “Hey, just go out and shop and carry on,” Shields said. “It’s a lot harder to carry on with your life now.”
