How Maine comes through the human and economic toll of the coronavirus pandemic largely hinges on whether people take precautions to thwart the virus and whether a pending federal stimulus deal is enough to jumpstart the sluggish economy.
The Bangor Daily News asked five experts — Stefan Iris, chief investment officer at Camden National Wealth Management; James Myall, a policy analyst at the liberal Maine Center for Economic Policy; State Economist Amanda Rector; Bob Montgomery-Rice, president and CEO of Bangor Savings Bank; and business economics professor Sheena Bunnell of the University of Maine at Farmington — to talk about the biggest challenges in 2021.
They agree that a new stimulus and more widespread vaccinations will boost the economy in the second half of next year, buttressing consumer confidence and unleashing pent-up demand. But ongoing strains on businesses and jobs portend a lackluster start to the year. Responses have been edited for clarity and brevity.
What is the biggest challenge near-term for Maine’s economy?
Iris: The near-term challenge will be replacing jobs lost permanently due to small business closures. Longer term, Maine’s challenge will continue to be renewing its aging workforce. Industries that experienced more of the permanent job losses also tend to employ younger adults. This may drive younger working-age Mainers to look for work out of state.
Myall: We’re seeing high levels of unemployment, hunger and housing insecurity. Suffering Mainers need relief, in which Congress and the Legislature both have a role to play. The vaccine gives a little light at the end of the tunnel, but we’ve got a long way to go.
Rector: Public health and economic health are intertwined and until there is widespread vaccination against COVID-19, we will not be able to return to all of our typical economic activities. Supports for those people and businesses hardest hit by the pandemic and the measures necessary to contain it are critical to keep the economy functioning.
Montgomery-Rice: The upcoming stimulus is critical for our unemployed, small businesses, hospitals and the state, but it gets to a small subset of those groups, and we’ll need additional stimulus funds to ensure we fully recover.
Bunnell: The biggest challenge near term is a workforce shortage that has been impacted by a pandemic-induced decline in Maine’s labor force participation rate since March 2020. Timely and successful distribution of the COVID-19 vaccine, willingness of individuals to take the vaccine and a continuation of public health measures will hopefully attract individuals who have dropped out of the labor market to re-enter it.
Do you expect a recession in 2021?
Iris: There is an increasing probability of an economic downturn early in 2021 as we transition from a surge in COVID-19 cases to effective virus containment. Stimulus will mute the negative economic impact as opposed to overcoming it entirely. We see recovery taking place in the second half of 2021 driven by pent-up demand and the expectation that vaccinations will reach the general population.
Myall: If Congress doesn’t take the right approach to relief for individuals and governments, we could see a slower recovery or even a second recession. In particular, Congress needs to keep resources flowing to local communities through cash payments, continued unemployment assistance and protecting public services like education and health care.
Montgomery-Rice: Even with the stimulus, our economy will remain limited and underperforming in the coming months. Some industries will survive and even thrive, but many are hurting and will continue to suffer without support.
Bunnell: My expectation for 2021 is steady growth in Maine’s economy with a low risk of recession because of the federal fiscal stimulus.
Do you expect unemployment in Maine to continue to rise and if so, for how long?
Iris: It will likely increase as the state continues to experience a surge in COVID-19 cases. The severity and subsequent recovery is heavily dependent on how successful Maine is in avoiding community transmission during the holiday season. We expect unemployment to decline in the latter half of 2021 as business activity returns to normal across key sectors.
Myall: The rate of unemployment decline is slowing almost to a standstill. We are at risk of a plateau in which shocking numbers of workers are unemployed and remain unemployed or even become so discouraged they leave the workforce entirely. We saw a version of this play out in the recovery from the Great Recession, and it dragged the recovery on for longer than was necessary with real harm to families and communities. The better economic situation in the summer can be tied to both a better public health response and a robust aid package from the federal government. If either of those are lacking in 2021, unemployment could well rise again.
Rector: Unemployment in Maine tends to be highest in the winter and lowest in the summer anyway. But the longer we go without widespread vaccinations, the more challenging overall economic conditions will be and the more likely we will be to see elevated unemployment. On top of that many more people than usual have had to leave the labor force this year, meaning they are not included in the official unemployment count.
Montgomery-Rice: I see a potential rise in unemployment in the near term. However, with the help of a stimulus package, individuals and communities adhering to safety protocols, and widespread use of the COVID vaccine we could see positive gains in our economy this spring. Consumers have pent-up demand, and by this time next year we could see a swing to a more vibrant economy.
Bunnell: I expect unemployment to remain above the pre-pandemic level for the next two years as the economy is being restructured.
Retail sales for November were down 1.1 percent, the most in seven months. Do you expect consumer sentiment to turn around in 2021?
Rector: For economic conditions to fully recover, people need to feel both physically and financially safe engaging in normal activities. Additional federal support can help bolster feelings of financial security while widespread vaccinations will create a feeling of physical security. Those two elements will contribute to improvements in consumer sentiment.
Montgomery-Rice: I anticipate that in the first quarter of 2021 sales will be down, but once we know how contained the virus is and how widespread the use of the vaccine is by the second quarter, we will be able to more accurately predict the recovery timeline. Additionally, with pent-up consumer demand, by summer we could definitely be back to a stronger economy.
Bunnell: Consumer sentiment will turn around by April 2021 once the worst of the pandemic is over and there is general optimism of having survived a tumultuous time period. Consumer optimism will drive the economy for the second half of 2021.
What are your best and worst case predictions for Maine’s economy in 2021 and why?
Iris: In the best case, we would see a rapid return to full employment during the second half of 2021, propelled by widespread resumption of business in retail establishments, restaurants and venues that thrive on the public gathering such as sporting events and concerts. In the worst case, the recovery could be drawn out for more than a year, slowed by widespread loss of small businesses that close permanently and by vacancies in commercial real estate occupancy caused by a permanent shift in favor of working from home.
Myall: The best-case scenario experts were discussing in the spring in which we “return to normal” now seems remote, because the federal government allowed too much damage to occur during this summer, fall and winter. That damage will have lasting effects. But with adequate policy interventions, we should be able to get on an upward trajectory and ensure no one is left behind in the recovery. The worst-case scenario is another recession, and one that causes much more hardship if there isn’t the political will to address it the way there was in March 2020.
Rector: My hope is that there are additional federal supports that get us through the early part of 2021 while we are working on getting everyone vaccinated, at which point infections and cases will diminish to a point where we will be able to return to our usual activities. In the meantime, I would love to see businesses that have had creative solutions to social distancing restrictions continue with those innovations and, hopefully, see even more businesses find new ways to engage with customers.
Montgomery-Rice: The worst case is if we can’t get a hold on the virus, and economically we remain in a difficult and potentially worsening place. If we’re able to collectively follow social protocols and the vast majority of people receive the vaccine I think 2021 could end strong.
Bunnell: The best case prediction is that the economy roars back to life as the pandemic is controlled. Pent-up consumer demand will drive the robust recovery. The worst case is that the economy stalls as the pandemic is not controlled successfully. Lack of the availability of the vaccine and/or individuals not choosing to get vaccinated both will prolong the pandemic and the path to economic recovery.