The Economic Impacts of COVID-19
COVID-19 Economic Impacts
This article is part of an ongoing collaboration between the Colorado School of Public Health, the Denver Museum of Nature & Science, and the Institute for Science & Policy. Watch the full recording of this session and find all of our previous COVID-19 webinars and recaps here.
COVID-19 has sent shock waves through every sector of the U.S. economy, leaving businesses to navigate an uncertain future and millions of workers out of a job. While some industries look poised to bounce back quickly once the pandemic recedes, others may struggle and/or be permanently reshaped. What will meaningful recovery look like in Colorado, and when might it arrive?
The Institute’s Senior Policy Advisor Kristan Uhlenbrock recently chatted with Kelly Brough, President and CEO of the Denver Metro Chamber of Commerce and Richard Wobbekind, Associate Dean for Business & Government Relations at the University of Colorado Boulder’s Leeds School of Business about the current state of the economy and what we should expect going forward.
This transcript has been lightly edited for clarity and flow.
KRISTAN UHLENBROCK: Good morning to you both. Richard, could you give us an overview of where we stand as of today?
RICHARD WOBBEKIND: Thanks for inviting me, pleasure to be here. I just want to set a little bit of groundwork for where we are in terms of the economic situation. Number one is that we know there's been a resurgence in domestic cases in certain parts of the country. This of course impacts the underlying recovery, if you will, of the larger macro economy.
The national economy and the state economy were both on very strong footing prior to COVID-19, at least as measured by unemployment rates. The CARES Act and the Federal Reserve certainly helped mitigate some of the impacts. Whether that's sufficient is a question at this point, as is whether there needs to be additional stimulus. It's a political hot potato right now. But what they have done in the past, at least, really seemed to help in terms of getting us to where we need to go. Certain industries have been disproportionately impacted.
One point I really want to highlight is that people are getting really excited over some of the employment numbers and I think they're only telling part of the story. Colorado is outperforming the average state, which given the size our leisure and hospitality sector, is a little bit surprising. We'll talk a little bit about that as we go along. And then the last part is structural changes - what kinds of things are going to come out of this that look like they're temporary and what's going to be permanent.
GDP is the measure of national output and as much as we would like to say Colorado can recover totally by itself, the reality is we're part of a much larger entity. We have a tourism industry that gets people from all over the country and frankly from all over the world. We have businesses that sell to other businesses. So although we can look at local retail and local types of services, we really need to be talking about this in the larger context of national economic recovery.
We can see that the GDP lost in this particular downturn is very similar to the 2007 to 2009 recession, but the recovery path is quite a bit different. We saw the second quarter GDP drop by 33% roughly. Most of us believe the third quarter GDP is going to come in at a positive 25%. So, somewhat of a snapback. That particular view sort of supports the “V-shaped” recovery, but the reality is that some sectors are taking such a long time to come back, particularly leisure and hospitality, air transportation, arts, entertainment, and recreation. So you when you think about those sectors and how long they're going to take, it winds up being much more like a “swoosh” shaped recovery.
We had a lot of income in the month of April. We got the check in the mail from the federal government for $1,200 dollars a person if you were under a certain income level. And that really boosted income, even though GDP dropped so dramatically. We saw a big boost in income which has helped retail sales in the economy. Of course, we had never experienced a full shutdown in the economy. We saw 22 million jobs lost over a two month period and at this point we've seen about 9 million of those jobs come back. About 14 million people are on continuing employment insurance, so we have a big hole. We need to get those jobs back and that's what we're working on
In predicting how long it takes, I really like to highlight that as we saw with the 2001 recession and then the 2008 recession, they continue to take longer and longer each time. But we don't think this one is going to take as long, probably somewhere in the 40 month timeframe. And the reason is that the financial system has been propped up so dramatically by the Federal Reserve and we're not seeing financial instability in the housing market, corporate credit market, and the banking system. We were on better footing going into this in terms of all of the different markets, but we also have seen a really significant response by the Federal Reserve, in terms of getting those markets profitable.
This downturn has been disproportionate in where it's been impacting the economy. Based on BLS data looking at lost wages, high income earners lost very few jobs and middle income earners a little bit more. Certainly low income households have lost the most. We have seen the regular unemployment rate come down to 10.2%. The so called U6 rate came down to 16.5%. (That's workers who are looking for jobs, but aren't finding full time work.) So a little bit of the under productive labor is added in that bigger number, but still a pretty dramatic drop down from 10.2%. We see higher unemployment rates for Blacks or African Americans, Hispanics or Latinos, women, and lower levels of education, s
So we really have a challenge thrown down with this particular recession. Looking at what happened in March and April, you can see a dramatic job losses in a few categories that accounted for about 73% of the decline. Accommodations and food services, healthcare and social assistance, arts, entertainment, and recreation, then retail and other services including beauty parlors, tattoo parlors, salons, and so on. And then in May, June, and July - as of data released on Friday - we've seen some significant recovery in the last several months in places like arts, entertainment, recreation, accommodations, and food services. We've seen some nice recovery there, but remember they were very, very hard hit. So there's still very high levels of unemployment in those categories.
I do want to highlight what I've been referring to is the collateral damage. State and local governments are starting to lose jobs, as well as transportation and utilities, particularly air transportation. We're starting to see the impact of the drop off.
We like to look at numbers, so in terms of initial claims for unemployment, you can see how they spiked dramatically spiked from where they had been historically, and we have since seen a nice downward trend on those. Even in Colorado, the continuing claims have continued to go down and the most recent numbers were very positive. That said, we came out with an unemployment rate of 7.4%, eighth best in the nation. It's really a good number. It was exciting, but it was driven by partially by a large number of people leaving the labor force. We had a smaller number of people looking for work, so they're not considered in the unemployment data. And that is a little troubling when you workforce starts to shrink like that. We don't have the qualitative information yet, but it's something that we really want to look at as we go forward.
Economists like to think about how long it takes for a temporarily unemployed person to wind up being a permanently unemployed person. And so, the longer it's taking for these jobs to come back and these people to go back to the jobs they had, the less likely it's going to be that the jobs actually return for that person. 80% of the people were saying in surveys they thought they were going back to their same job. The numbers more recently are down in the 60% range. And right now, we have 56%. We really have a ways to go.
Looking at Colorado, the disproportionate hit to tourism-based counties in terms of unemployment shouldn't be too surprising. The lowest unemployment rates are out on the eastern plains where they had a very low percentages of the employment base in leisure and hospitality and retail, so you don't have those sorts of impacts that were so strong in the urban area and mountain tourism areas.
Lastly, I’d highlight the telework changes that we've seen out there. Workers are indicating they expect to be able to continue to telework. We see that it's been adopted more by Asian and white employees than by Black or Hispanic. It also has been adopted a lot more by higher educated professionals. But we also expect to see change over the long haul. There seems to be a pretty significant movement to less dense areas, which creates different transportation and office arrangements will might very well change the nature of retail and e-commerce and certainly the digitization of things like healthcare and education. So we do believe that some of these will be long lasting changes. Some of them may go back to normal when we get the vaccine. That's when this thing really ends: when we get a vaccine.
KU: Thanks, Rich, and good morning, Kelly.
KELLY BROUGH: Good morning, great to be here. I'm going to focus on some work the Chamber began in 2018 called Prosper Colorado, and then share with you how COVID-19 has impacted the priorities and the focus. We recently did some research with our membership, 3000 members representing 400,000 employees in the state of Colorado. They're a great source of information for us and we rely on them a great deal.
As we entered this situation in March, we had to adapt quickly like everybody else. The first goal is to keep employees in their jobs if we can keep them up and running. As Rich said, that makes a huge difference. We've done everything we can to support our employers in being able to keep those employees, including the Paycheck Protection Program and other grants and resources. The second priority was to help those who've lost their jobs and find new ones.
So I want to talk with you a little about what our economy was like before all this. For three years in a row, US News and World Report has ranked our region as the number one economy in the nation. This is a great place to sit. And yet, two years ago, right after we got our first ranking, we started to do some research in our state to really understand, because we saw some disparities. And while we continue to be ranked as one of the best states to start a company, in terms of closing the gap for women and people of color, we felt like there was some data out there that told us maybe we weren't as good as we thought. If this is the best economy in the nation, that isn't good enough for us.
One in four Coloradans was on Medicaid pre COVID and we predict that will go up now. Remember, Medicaid is government provided, but it's based on income levels. And so before COVID, in the supposed best economy in the nation, one in four Coloradans was on Medicaid. Only 35% of women in our region make more than the median wage in our region. And yet, they’re close to 50% of our population. We recognize that education is really important, and what we found is when you control for education, people of color and women with a college degree were still making less than a white male without a college degree. That was also very compelling.
10% of the people who are hospitalized with the virus are African American or Black in our region despite making up about 4.6% of our population in the state. 38% were Hispanic. They make up about 22%. Our white population is about 68%, and yet only 37% of the COVID cases.
Richard talked about labor participation rates around the country, Colorado has, in the last couple of years, had some of the highest labor participation rates meaning more people were working. Since the virus, 97,500 fewer people are working in our economy. Our unemployment rate was very low coming into this and by June we were over 10%. In July, we started to come back a little at 7.4%, but as Rich said, we have got to move quickly to help people get back into jobs.
Women over the age of 35 experienced an 8% decline in that labor force participation, one of the largest rates of decline that we saw when the virus hit. Before the virus, we looked at our numbers and found that women earn 81 cents on the dollar. This is a national figure. So for every dollar a man earns, women are earning 81 cents. When you look at women of color, it’s significantly worse number. Women are more likely to drop out of the labor force and in recessions that gender gap actually can narrow. But we’re predicting it will expand by about 5%. Some economists are predicting women will be earning 76 cents on the dollar.
We also looked at who starts jobs in Colorado, and what we found is that women and people of color are much less likely to start a business. And then we looked at the cost of buying a home, or being impacted by the cost of renting. Black and Latino families have significantly more cost burden on their homes. That's, of course, directly correlated to the jobs, and the reality of being underrepresented in high paying jobs. We're trying to develop goals specifically around reducing these disparities. And then of course the tragic death of George Floyd brought racial disparities to light for our nation in a new way.
We want to get our unemployment rate back to under 5%. We want to increase the number of women and people of color at that $40,000 wage, get them much higher in our jobs market, and remove those disparities. We still build our wealth through home ownership primarily and it is unclear how real estate will be affected in this pandemic. We see how many of our employers who have commercial property work downtown or in the Tech Center. How many of their workers have gone remote? It is an interesting question of what will that look like in the long run. I think of those shared workspace, just rotating desks and renting for a period of time. There's some real struggle there.
KU: Thank you, Kelly. We’ll get to some viewer questions now. What are your thoughts on the balance between public health and reopening the economy?
RW: This has been the billion dollar question, if you will. How long do you let it go? Quite honestly, the country was not prepared for this. We didn't have the health resources in place. We still don't have any sort of treatment. You can look at this and say we shouldn't have ever done it ─ and I have friends who truly believe we shouldn't have ─ but I don't think we could have handled [the outbreak]. That’s just a personal opinion.
The question around reopening is a much more interesting one because as I was suggesting, the longer you stay closed, the more that temporary stuff becomes permanent. So to the extent that that starts to happen in other parts of the country that have been more restrictive after the rise, I do think it's going to really prolong the economic recovery. So, it's a huge trade off. We're talking about lives and we're talking about jobs. Are we going to have enough money to pay for all this stuff, taking so much out of the federal budget? So I think it's a very controversial question.
KB: If we had a crystal ball, it would be way easier to figure out. Our behavior matters. We’ve all learned that better behavior will keep us healthier: washing our hands, not touching our faces, all of those things. Nobody understood in the beginning how important that was. We thought masks were about protecting us when really what we're doing is protecting everyone else. I'm going to give you an example, I think it was in Tennessee. [Editor’s note: This case occurred in Missouri.] There were two women hairdressers. This is a job you can't do socially distanced. They were shut down for a while. When they got back, they saw a massive number of clients. They wore masks through the entire thing. A few days later, both are tested and realize they have COVID, but they were asymptomatic. Not a single one of their clients got COVID. I mention this because as we've learned more about the virus, what we realize is the steps we personally take to protect those around us can be extremely helpful and critically important.
It can also remove this notion that we can't do both of these things: reopen thoughtfully and protect each other from the virus. I think that's what we really have to focus on right now. We also have novel ways of monitoring – excrement, for example. There are ways that testing can be done to start to isolate the issues and our own higher ed institutions are driving some of that cutting edge sort approach. I think we should be extremely proud because it's that kind of work that will allow us to reopen safely and get people back to work.
KU: Rich, do we have the right tools to understand the behavioral component to the economy and to help us think about how to reopen?
RW: We're looking at confidence surveys and we're doing all sorts of high frequency data analysis now, trying to get the sentiment of people and whether or not they're going to be willing to go back. Some people are going back to restaurants two or three nights a week and other people are not going back to restaurants at all. Some people are more nervous about the virus than others. Certain age groups are more nervous about the virus than others. So, we are trying to do a lot more behavioral surveying compared to in the past, we didn't. Traditional economic stuff didn't focus on how scared people might be of going back to the retail store or going back to a restaurant.
KB: The most complex problem is when you have to change somebody else's behavior to accomplish the objective. Our country has a history of recognizing that sometimes we sacrifice something personal, and by that I mean wearing a mask. We sacrifice a little of our personal freedom to take care of the rest of our nation or the world. And I saw some comments like ‘hey listen this is just a virus. you know it's a few symptoms that make you uncomfortable.’ I want to be really clear that for a number of people in our population, it's actually deadly. I am the caregiver for my parents right now, and they live in their home. They’re on full lockdown because what is crystal clear is that if they contract this virus. they will die. And that is really a big deal to me.
The largest population contracting the virus right now is 20 to 29. That's wasn’t the case when we first got into this pandemic. There are other very real issues that put people at great risk and, and even if you aren't in that category or don't have people in that category, our community really does. And I think that's what we have to remind ourselves when we're complaining about the behavior changes required of us.
KU: Have we done a sufficient job in helping essential workers, who don’t have the luxury of working from home like you and I?
KB: I have a daughter who's in that category right now as well and what we are recognizing is that often those lower paid jobs are coming in contact with the public. I think it's critical that we figure out how we protect them. And the way we protect them is to wear that mask. I do think employers have taken this very seriously, their obligation to protect workers. You see increased cleaning rates, you see complete change out in HVAC systems to ensure the air being rotated as the science advance. That’s all helped. But frankly as a country, our performance in this regard is not great compared to the rest of the world. And I don't think we should lose sight of that.
RW: My two daughters and my daughter in law are in a similar category and even they don't totally agree about how effective this is. My daughter with the San Francisco Public Schools is, I would say, extremely nervous about the protections that are in place right now. But I think we've made improvements. We've learned a lot more about the virus.
KU: What is the value of the stock market as an economic indicator, given that it seems to be divergent from many peoples’ experience right now?
RW: Historically, the stock market has been considered a leading economic indicator of the economy, six months to 18 months out. So, one thing you could say is the stock market's going up because the broader underlying fabric of the economy believes that 18 months from now we're going to be in a heck of a lot better shape than we are right now. And I think a lot of people believe that because they think we're going to have a vaccine and that we're going back to more normal things by the middle of next year, and so on. Less afraid to go back to the more traditional types of things we've done historically.
But there's also seems to be a pretty big disconnect between Main Street and the stock market right now. A large percentage of people own stocks in their account and are certainly benefiting from this. But we know the spending rates of higher income folks was slower than lower than the spending rates of lower income folks. Where's that money gonna go? Are you going to put it in a bank at almost zero percent interest? Or are you going to buy stocks at no cost, with no brokerage fees, which you can do on an app while you're sitting home? So the money had to go somewhere and money's flowing to the stock market. That all said, there’s a bit of a disconnect here right now between the overall performance of the economy and the stock market.
KU: Kelly, you often talk about needing to create great jobs. And you actually talked a little bit about some of the innovation when it comes to research that's coming out from the COVID-19. What are some of the emerging opportunities you see to rethink some of parts of our economy?
KB: Think about how long we’ve been saying we should take our workers remote. We’ve been on a slow roll to do it and here we are today, 100% remote. Those employers who can do that would probably say they’re doing pretty well. So I think that’s one area where you’ll see continued remote working and value for it and an increase in demand. But there’s also a lot of services we’ve shifted, like curbside pickup, and there will be different levels of service expected by the consumer now.
Tech is certainly important, but I think we’re struggling to replace the socialization. I have 60 employees in the Chamber and the thing we miss most is seeing each other and being together. Yes, we do Zoom and we do Team. But we really miss spending time together and I would say I am worried a little about innovation. You know, there was some research done at Google. When they went remote, what they realized is they wanted to bring employees back because innovation went down. That natural bumping into each other in the workplace, talking about what you're working on with somebody who doesn't work on it, often introduces new ideas or new approaches. I think that's the piece we're all hungry for.
And I think what we're discovering is there are ways we can be in the workplace safely. It allows you to be a little closer together and I think that's what we kind of have to figure out. I also think that can reintroduce jobs into the economy again. People who clean your office their job became way more important until we all stopped going into the office, and it gets reintroduced when we go back. Same with security, jobs that we often forget are dependent upon us being in that building. So it's not as much innovation as a recognition that there is a way we could do this. What we probably can't do effectively yet is all go to a bar and dance and drink and take our masks off and believe we're really safe. I do think a lot of those traditional jobs can be brought back safely and Colorado is doing a great job of proving it out.
RW: Some of the folks that are out of work temporarily are going to be permanent. We know that. So we shouldn’t miss this opportunity to try to upgrade skills. They could move into better wage category jobs. I think we're going to need less employment in some of the jobs they were in. Quite honestly, we've figured out how to do this restaurant thing much more efficiently now. The websites are amazing when you do curbside pickup or ordering and whatever. The digitization of this stuff has been amazing, just so rapid. So I really think we need to use this as an opportunity as we re-educate an element of our workforce. Again, unfortunately, this fell very disproportionately on certain elements of the society. Unlike the last recession, industries like financial services will tend not to be a low wage area and are taking almost no impact, so it's a different workforce to look at.
KB: I saw somebody wrote about the distrust of institutions and I think this is such a real issue. We've all had access to the internet and if I blog it, it must be true, which has made us wonder what can I trust. Organizations like the Museum and the Institute are much more critical to getting good information now. I think the rebuilding of trust in each other and trust in institutions is really probably an important part. I really appreciate somebody raising that. I don't know all the answers to it. But I think it does require that we acknowledge it, and that we be a little vulnerable and open to hearing why there isn't trust and what we can do to try to help rebuild.
KU: What is one hope you have or one opportunity you would like to see us move towards in the next six to 18 months?
RW: This may be controversial, but I think it really, really depends on our continued success at treating and limiting the spread. Right now, the spread seems to be limited to certain age brackets and those age brackets, frankly, are less vulnerable in terms of death and serious injury if they don't have other types of mitigating conditions. I think bringing the death rate down is significant and getting the virus under control until such time when we have a vaccine. I'm amazed at what the healthcare industry has done - really impressed. But I don't think you get back to normal for a lot of these industries until we're back to normal seating capacities. We’re going to have huge turnovers in restaurants. We're seeing massive new business formation on a weekly basis around the country, so people are definitely seizing the opportunities and definitely moving into some of those spaces. And that would be my number one piece: get the entrepreneurial spirit really moving forward.
KB: Yeah, let’s make the decision that we're going to reduce the spread and protect people and then we can continue to reopen. I'm going to emphasize something else. I think when we looked at disparities what we really found is education does help. It increases people's opportunity. But we also found that many of us as employers ─ public, private, for profit, across the board ─ have a lot of requirements for a four year degree where a four year degree is not required. We see that as a barrier to providing opportunity and reducing some of the disparities we're seeing and helping move people who have been unemployed into really good jobs in the short run.
So the thing I would ask everybody is: Talk to your employer. If you are an employer, look at your job descriptions and ask the question: was the four year degree a proxy in this job and could I remove it and invite more applicants who could access this opportunity at this moment when they need it the most and train them and they could be very successful in this job? I know the answer is yes. And I think that alone could help start to move people back into this economy because we do have jobs out there.
KU: Thank you, Kelly and Rich, for a great conversation.
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