On March 26, 2020, the United States became the epicenter for the COVID-19 outbreak when the amount of new cases surpassed both China and Italy. In response, the myriad local and state governments have issued a patchwork of voluntary and mandatory seclusion orders, disrupting almost every industry. Restaurants and retail stores are closed to the public, airline traffic has dropped by 80 percent, small businesses are gasping for air. These mitigation methods have led us to the precipice of a fiscal cliff. Already more than three million people nationwide have filed for unemployment claims, and the virus isn’t anticipated to peak for another month.
While necessary to control the COVID-19 outbreak, non-pharmaceutical interventions like closing gyms and barbershops and limiting restaurants to filling take-out orders will likely have a devastating effect on local economies. As this is a somewhat-unprecedented situation, at least in living memory, it’s hard to say whether small businesses and their workers will weather the pandemic.
Luckily, the Center for Business and Economic Research at the University of Arkansas recently released a study about the expected economic effects from COVID-19-related disruptions. The report is a gloomy read, but the information contained within is an important predictor of the real financial costs that containing this virus will require.
The Center’s predictions are based on the following parameters:
- The COVID-19 containment measures will be in place until mid-June, when they’ll be slowly scaled back.
- That food service and bar sales will be reduced by half in March and June. Their sales in April and May will be down 80 and 90 percent, respectively.
- Hotels and other personal care services will follow a similar trajectory, dropping by 50 percent in March and June, while sales in April and May will be reduced by 80 percent.
- Gyms and other recreational services sales dropped by half in March and June, and will hit zero for April and May due to mandated closures.
Following those assumptions, the Center measured the economic impacts on ten major Arkansas cities. Within those cities, businesses that are hardest-hit by COVID-19 mitigation measures (food, leisure, hospitality, recreation and personal care services) are predicted to lose at least $565.6 million in sales. Restaurants and food services will suffer most, accounting for 77.6 percent of sales lost. Accordingly, sales tax collections from those industries are expected to decrease by $10 million, potentially complicating any attempts by the state government to provide economic assistance while simultaneously providing them plausible deniability for not helping.
Here’s a breakdown of each city’s expected losses:
Little Rock: The capital bears the brunt of the impact, losing roughly $161.1 million in sales from industries affected by COVID-19 containment measures.
North Little Rock: Argenta businesses stand to lose $51.35 million in sales.
Conway: Central Arkansas’ up-and-comer is expected to see a $33.3 million drop in revenue.
Jonesboro: The hub of northeast Arkansas, Jonesboro’s leisure, hospitality and personal care service industries are expected to lose $40 million from pandemic-related disruptions.
Fort Smith: On the opposite side of the state, affected businesses in the former-frontier town of Fort Smith are projected to lose $77.7 million.
Russellville: Taking the comparatively-smallest hit on this list, Russellville’s industries are expected to lose $19.4 in sales.
Befitting their location in Fayetteville, the Center went a little more in-depth in their study of the region’s four major cities. Rather than simply measuring the sales losses incurred in the hospitality, leisure and personal care industries, they provided estimates for the cities’ total economic losses.
That includes not just the impact of lost jobs and revenue decreases, but also the losses incurred throughout the logistic infrastructures supplying those industries and the lowered spending power of underemployed/laid-off employees in those businesses.
So, while sales losses in the Northwest Arkansas region are expected to reach $202.2 million, their total economic losses will total at around $305.6 million, and at least 5,000 people will lose their jobs. 3,000 of those job losses will happen in the food services industry.
Bentonville: Bentonville businesses will experience a $55.5 million reduction in economic output, and 872 jobs will be lost.
Fayetteville: Naturally, the largest city in the area has the most skin in the game. Fayetteville’s economy stands to lose $112.1 million and 1,784 people are predicted to lose their jobs.
Springdale: Affected area industries are expected to lose $51.5 million in sales and 828 in jobs.
Rogers: Businesses in Rogers will experience an $86.5 million economic loss and 1,421 of its citizens will lose their jobs.
Beyond Arkansas
On March 26, Federal Reserve Chairman Jerome Powell announced that the United States was likely already in a recession. This was closely accompanied by the news that Congress had passed a $2.2 trillion COVID-19 stimulus package, the largest economic relief bill in U.S. history.
Based off the potential assistance provided by the federal stimulus package and an assumption that new coronavirus infections will peak in late April or early May, the Heartland Forward Institute analyzed the effects of the COVID-19 economic disruptions across twenty states in the U.S.. The twenty states measured are shaded in the image below.
Within these parameters, the Bentonville-based economic think-tank created a report on the regional impacts of policy responses to COVID-19. First, it found that central states should experience fewer COVID-19 cases per capita and lower economic fallout than coastal states. The lower predicted rates are attributed to a below-average population density, the activation of public health measures before infections became widespread, and a lack of large, concentrated elderly populations.
Despite these legs up, several industries in our “flyover” states will be strongly hamstrung, even those outside of the food, recreation and hospitality industries the University of Arkansas researchers focused on. Across the central states, Heartland Forward predicts the oil and gas industry will be hardest-hit, due to its susceptibility to large-scale ripple effects from a global pandemic.
Just as oil demand dropped in China and the rest of the world, U.S. oil companies accelerated shale production. U.S. shale producers can remain profitable so long as prices stay around $30/barrel, but in the past month the price on crude oil fell from $49.90 to $22.94 per barrel. If airlines cease commercial flights and more states mandate stay-at-home orders, that price is likely to continue falling. Some industry analysts are already hailing the death of the Texas oil industry. This may turn out to just be alarmism, but even if a cure for COVID-19 is found next week the pandemic will have drastic effects on the energy industry.
Closer to home, Heartland Forward predicts that Northwest Arkansas will be among the hardest-hit by losses felt in the trucking and logistics industry. It also points to Hot Springs as potentially experiencing strong economic fallout from its dependence on tourism.
Silver Lining
It’s not all doom and gloom, however. Heartland Forward delivered a somewhat-promising (well, at the very least not damning) economic prognosis. Assuming the federal government will provide a $2 trillion stimulus and that new infections peak in late April or early May, the real GDP for Heartland states should fall at an annual rate of 5 percent during the second fiscal quarter. Under the same conditions, the rest of the country will experience a 10 percent decline.
During the third quarter, the Heartland’s real GDP should stay flat, while the rest of the country’s GDP continues declining at a reduced rate. After that, the entire U.S. should begin bouncing back, with Heartland states experiencing 3 percent growth and the other areas enjoying 3.5 percent.
Either way, Arkansas and the other central states are expected to weather the economic consequences of COVID-19 in pretty much the same way they’ve handled every other economic downturn: We don’t lose as much, because we don’t have as much to lose. If events continue transpiring as the Heartland Forward Institute predicts, we’ll be back on our feet by Thanksgiving.