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A group of economists told the Bangor Daily News on Thursday that the coronavirus has caused an unprecedented economic shock with no clear roadmap for recovery, with one calling the situation particularly “dire” for Maine.
The economists agreed the near-stoppage of most economic activities was necessary in order to stop the spread of the virus. One in 10 workers in Maine filed for unemployment during three straight weeks of record jobless claims and the panel said the economic slowdown could have lasting effects for Maine’s economy with declines in spending exacerbating the problems posed by government-mandated closures.
Michael Donihue is an economics professor at Colby College. Daniel Innis is a professor of marketing and hospitality management at the University of New Hampshire and former dean of the University of Maine Graduate School of Business. James McConnon is an extension business and economics specialist and economics professor at the University of Maine. Sheena Bunnell is a professor of business and economics at the University of Maine at Farmington and director of the Maine Health Research Institute.
How bad could things get before the economy starts to turn around?
Innis: We essentially shut down 30 percent of the economy by government order. It’s the restaurants, it’s the hotels, but it’s also the food service suppliers, the linen suppliers and so on. I don’t think it’s inconceivable — and I’ve heard this number thrown around — that we get into the 20 to 30 percent unemployment range before we reopen. That is huge. Those numbers exceed what we saw in the Great Depression.
Donihue: The numbers are so strikingly large, none of our models are going to work very well. So we need to rethink outside the box on the models. In this instance, we’ve already passed the worst of the recession as we saw it in Maine during the 2007 to 2009 period in terms of new unemployment claims.
Then, the industries that are being hit the hardest are the ones that really form much of the core of the Maine economy, namely the hospitality and tourism industries. With the related effects on things like the fisheries in Maine, the lobster industry in particular, there are real concerns about not just how deep this is going to go for them, but how are they going to recover from this? That’s where I think that’s where people have the right to be really concerned.
McConnon: These unemployment numbers are extremely high and troubling, and the impact that has on consumer spending is likely to continue to impact other sectors of the economy and in turn have additional impacts on employment.
I don’t know exactly what those numbers are going to be, but everything is just so interrelated. When you start having declines in overall consumer spending like we’ve had across many sectors of the economy, businesses have a hard time maintaining their revenues. They’re being forced to cut their costs and they’re unable, many of them, to maintain their level of employment.
That contributes to additional declines in spending, because generally people who are unemployed don’t spend as much as they do if they were employed. And that also impacts business investment. The longer this goes on, the more impact it is going to have.
Is it possible to get any sense of how quickly jobs can bounce back once the economy opens up?
Bunnell: The partial opening is dependent on the availability of testing, surveillance systems and contact tracing, so that businesses and individuals have the confidence that they can return to work.
Mainers have been generally very compliant, and they are adhering to the social distancing measures. They’re doing a very good job at that. That’s really working and hopefully should start flattening the curve. The unemployment rate really depends on what Mainers are doing to stay healthy. The healthier we stay, the higher probability we can start phasing in people going back to work and going out.
Innis: We don’t go back to normal life right away. … For instance, we’re not going to be able to go to baseball games yet. Look at Portland and the Sea Dogs, and think of the impact of not having those games on that economy. It’s a big one.
That is going to play out all over the country. There won’t be concerts at first and who knows when we’ll be cleared to do those things again in large groups. All of that has an economic impact that is very substantial.
Can recoveries from previous economic downturns tell us anything about how the economy could bounce back this time?
McConnon: I think this is very unique and a very exceptional situation. It is so unique that it’s really hard to look at other economic cycles and see what we can glean for that. I would say it really depends on the duration of this.
Donihue: This is the first recession we’ve ever seen that started in the consumer service sector, and mainly in the tourism and hospitality industries. We’ve never seen a recession that started there before. So it requires a different kind of policy response as a result.
If you think about Maine’s economy, we do have a healthy manufacturing sector, but it’s nowhere near what it was historically, and it certainly isn’t the most important driver. And as we look to the summer months, as normally we get that boom in tourism that many businesses depend on for the entire year. It’s unlikely we’re going to have the same traffic to Maine. So the outlook for the economy in Maine is pretty dire, I would say.
Watch: What does returning to normal look like?