It’s been upsetting, scary, disruptive and in some cases deadly. But, when the COVID-19 virus has run its course, economists will be writing plenty of books and academic papers about the economics of the pandemic. That’s what economists do. However, it seems a lot of people are trying to get an early start. There is a whole new industry of news reporting and forecasting devoted to the chilling economic effects of the pandemic. Just how much will our GDP contract and for how long and how many people will be out of work? There is a reason they call economics the dismal science. It usually doesn’t thrive on good news.
But, the principal concern at the moment is with the health of our population. Workplaces are closed, schools have been shut for the remainder of the year, all public universities in Virginia have gone virtual, restaurants and most “non-essential” stores are closed. That’s good for our health, but the economic fallout isn’t going to be long in coming.
If you work for the federal government, you’re probably in a good place. The general rule for most government employees is to work from home. That means you still keep getting a paycheck. However, many government contractors are in a tough place. Some are working remotely, but most aren’t and they’re not getting paid. In other words, it won’t be long before things get tight.
Employees at the big retailers, T.J. Maxx, Kohls, Macy’s, Big Lots and Best Buy, to name a few, are out of work. Small businesses — and our region has thousands of small enterprises — are probably amongst the most harshly affected. Everything has come to a stop. From car repair shops to family restaurants. If the restrictions last too much longer many of these homegrown businesses will be pushed into bankruptcy.
Airline travel, buses and rail services have all curtailed services. People just aren’t going anywhere. And why would they? Everything is closed. Airline travel is at levels lower than those following 9/11. Pilots, flight attendants, dispatcher and airport personnel are being put on furlough.
Real Estate sales and new housing construction seem to have tailed off, as well. Though the only information available at the moment is scant and anecdotal. But it seems the uncertainty about job stability has temporarily put off some buyers and the fear of having strangers in their home has prompted some sellers to pull their listing or restrict viewings. These are going to be tough times for the real estate and building industry.
Then there are school employees. The teachers and administrators are getting paid, but hourly employees, such as bus drivers are not. Maintenance workers, the janitors, the folks we asked to disinfect the schools before we closed them, are usually hired on an outside contract. That means when their services are no longer required; they are laid off. It takes thousands of people to take care of our region’s schools.
Indeed, the same can be said for the tens of thousands of people who take care of public and private buildings of all kinds all over the region.
The list goes on. Fear of personal contact and social distancing requirements have forced a lot of us inside. Even if we’re still drawing a salary or getting paid, we’re not spending money. That’s the way the economy works. Someone has to spend some money, on gas, on car repairs, on home improvements, on new shoes, whatever, for someone else to make some money. However, that’s been disrupted in a completely unprecedented way. Sorry, there is no playbook for this one.
How severe is the contraction going to be? That’s a tough one. It all depends on how long the stay at home and shut down orders last. A month, and it will hurt, two months and it will hurt that much more. Assuming a six-week period of restrictions some estimates for the projected contraction in GDP have been as high as 30% with unemployment reaching 15%.
When people start spending again there will be pent up demand, but that’s going to be offset by backlogged bills and the problems some Americans may have in finding a new job. The economy doesn’t turn on and off like an electric blender. In other words, it’s going to prove a lot tougher to restart the economy than it was to shut it down.
David Kerr is an adjunct professor of political science at VCU and has worked on Capitol Hill and for various federal agencies for many years.