Roadmap for 2021 recovery doesn’t exist

The COVID-19 pandemic has affected so many aspects of people’s lives in 2020 that it is hard to separate out things that didn’t happen because of or in response to COVID. As the region looks forward to 2021, it is important to look back at the economy and how it was negatively impacted in 2020 and how the year’s events will continue to impact Northern Colorado and the state as a whole.

The pandemic hit Colorado’s hospitality industries, such as hotels, airlines and travel, hard. It also has made it nearly impossible for smaller businesses like restaurants and shops to keep their doors open, either because of state- and city-mandated COVID restrictions or because people weren’t getting out as much anymore because of the pandemic.

Unemployment numbers continue to rise and even with two vaccines approved by the Food and Drug Administration, it could take most of 2021 to get the majority of Americans inoculated, which means that wearing masks, social distancing and limits on group get-togethers will continue to be the norm in the New Year.

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What will the New Year bring?

Forecasting what could happen with the economy in the coming years is difficult during normal circumstances, but the pandemic has made a difficult situation even more problematic, said Martin Shields, professor of economics at Colorado State University in Fort Collins.

For one, the country hasn’t experienced a pandemic since the early 1900s so there really isn’t a textbook out there for how to bring the economy back from something of this magnitude. The Great Recession in 2008 was easier for economists to figure out because “we have a pretty good understanding of how financial markets work and a good understanding of the role of the Federal Reserve Bank and how fiscal policy works,” said Shields.

And even though the financial crisis was a shock to the country’s system, “we understood the structure. Here we really don’t understand. There are so many factors. …There are so many things outside the norm that make forecasting incredibly difficult,” he said.

The hardest hit industries are the service economies like hospitality, retail and food and beverage.

“It is hard to know when they are going to come back and what they are going to look like when they do come back.”

There is much uncertainty surrounding the pandemic and its impact on the economy because nobody knows when people will feel good about traveling again or when businesses will let their employees travel again. If people don’t travel for business or pleasure, industries that rely on them will remain depressed. As winter sets in, it has made it difficult for restaurants and bars to host customers outside on patios, and many people are not eating out as often because they have lost their jobs or they have health conditions that are keeping them away from crowds.

“We don’t have a strong grasp of how many businesses will survive this,” Shields said. Some estimates show 40% of restaurants may permanently shut down because of the pandemic and its restrictions. “That’s an incredibly significant structural change,” Shields said.

Forecasting is made even more difficult because economists need to take not only market conditions into account but policymaking when trying to determine what lies ahead.

The government stepped in early in the pandemic to pass the CARES Act, which not only provided additional money for unemployed people but paycheck protection loans to help small businesses keep their employees on the payroll during these difficult times. As the end of December was rolling around, Congress finally passed a $900 billion relief package, which included additional PPP loans, stimulus checks and a small amount of money for people claiming unemployment.

Boulder and Northern Colorado

Richard Wobbekind, senior economist and faculty director at the Leeds Business Research Division at the University of Colorado Boulder, said that Colorado, as a whole, weathered the pandemic a little better than many areas of the country but, moving north, it is a different story, with slower home price appreciation and higher unemployment rates.

Brian Lewandowski, executive director of the Leeds Business Research Division at CU Boulder, said that jobs data in these markets shows a much worse situation than the state of Colorado as a whole. Greeley MSA’s unemployment rate was 6.7% year over year; Fort Collins/Loveland MSA’s was 5.8% and Boulder’s was 6.2% year over year.

“We think that the job losses may be overstated. Not as bad as at first glance,” he said. “College towns are looking worse because of how student employment is counted in this particular labor file.”

Usually, CU Boulder hires thousands of student workers for part-time jobs, but since the University reopened in person, it didn’t hire back a lot of student workers. Local and state governments also didn’t hire student workers this year because they have been hammered by budget deficits brought on by the pandemic. Lewandowski said he believes that Fort Collins and Greeley’s employment numbers also look worse than they are because of the loss of student worker jobs at Colorado State University and the University of Northern Colorado.

Home price appreciation in Boulder and Northern Colorado has finally slowed down, but Lewandowski said that was expected since “home price growth over the past 10 years wasn’t very sustainable.”

Building permits in Northern Colorado, as of October, were still up year over year. Fort Collins saw an increase of 1.4% while Greeley’s were up 10%. Greeley has a lot more land on which to build single family homes compared to Fort Collins and Boulder, which are closer to the mountains and see more multifamily housing being built.

And even though the energy industry is experiencing a downturn because of COVID, Greeley’s economy is still doing fairly well. That’s because the area has diversified from a purely agricultural and energy economy over the past few years. Now it has a thriving health care and manufacturing economy. It also has seen its population boom since people can still afford to purchase homes in the area. Those people can stay and work in Greeley or commute to Fort Collins, Boulder and even Denver.

The state

Overall, Colorado lost 149,000 jobs in 2020 and Wobbekind and Lewandowski predict that the state will add only 40,500 jobs next year, which means it will take three to four years for the state to fully recover the jobs it lost due to the pandemic.

“This is a much more granular disruption than anything I’ve seen in my career,” said Gerard Nalezny, chairman and CEO of Verus Bank of Commerce in Fort Collins.

Typically, in a recession, there are broad sectors of winners and losers. But the pandemic has hit every town and every region a little bit differently, depending on the industries their economies depend on. Nalezny pointed out that restaurants and hotels in most places have struggled since the start of the pandemic, but in Colorado’s mountain towns, business is booming.

Without significant aid from the federal government, there could be a wave of business closures after Christmas, he said. If the stimulus is big enough, it may help some of those businesses make it through to March, April or May.

One thing is clear: Business in Colorado and across the country will probably look different on the other side of the pandemic. Nalezny said that many businesses will reconsider leasing out the same amount of office space since many industries have been quite successful having their employees work from home. Another change may be that businesses will cut back on the amount of business travel in the future because they realize they can save money and get just as much accomplished via online meeting tools like Zoom or Google Meets.

Many retailers have started online shops for the first time ever to capture some of that business since COVID-19 has restricted the number of patrons they can have in their brick and mortar locations at any given time. Nalezny suspects that those businesses will continue to offer online services when the pandemic is just a memory because it allows them to reach markets outside of Northern Colorado or the state in general.

Other industries, such as medical device companies, have done really well during the pandemic. One of Verus Bank’s clients that works in electricity transmission has seen its business reduced this year, but that industry is “not going away. It is just delayed. We are not doing away with electric power lines. Our challenge is seeing them through the dip and seeing them through the bulge,” he said.

Jeff Kraft, director of business funding and incentives at the Colorado Office of Economic Development and International Trade, said that certain industries across the state were harder hit than others, including recreation, restaurants, arts and entertainment, bars and restaurants and hospitality. And although the federal government has passed some stimulus packages, in the short-term it may be up to the state and various local agencies to boost up the industries hardest hit.

Anything the federal government passes would be “bigger than the state and philanthropic community can do,” he said. But Colorado is doing its part. The state passed 10 bills during a special legislative session at the end of November that provided more than $300 million in COVID-19 relief.

One bill allows bars and restaurants that have been hard hit by the pandemic to keep up to $2,000 per month in sales taxes collected between November and February or up to $8,000. Another bill allocates $57 million to small businesses and arts organizations that have suffered because of the pandemic. About $37 million of that amount will go directly to restaurants, bars, movie theaters, salons and gyms in amounts up to $7,000.

In the past 20 years, Colorado’s economy as a whole has diversified and that has helped it weather the storm a bit better than other states.

“Different sectors will come back at different times. Full recovery will take time, but definitely being more diversified makes us more resilient,” said Kraft.

And unlike the Great Recession, which seemed to hit rural areas of the state harder than metropolitan areas, the pandemic has had the opposite effect, with urban areas taking the brunt of the downturn and rural areas experiencing minimal impact, he added.