There’s a lot of buzz about the economy right now, and rightfully so.
In the past two weeks, millions Americans have filed for unemployment. Savannah hotels, usually filled to the brim this time of year, are at about 6% capacity.
On top of that, the Georgia Southern Economic Monitor’s fourth quarter report was released last week, reporting a strong finish to 2019 but predicting a big slowdown in the first half of 2020.
What does it all mean? Should you be worried? What next steps should you personally take?
Dr. Michael Toma is here to help.
Toma, the Fuller E. Callaway professor of economics at Georgia Southern, is behind the economic monitor, which analyzes data and identifies trends that affect our Savannah metro economy. He released the Q4 report last week.
He says the three main economic indicators leading the surge in the last quarter of 2019 were port activity, electricity sales, and tourism. The report predicts a modest slowdown in growth for the first quarter of 2020.
Because the report is of the final fiscal quarter of 2019, this slowdown was predicted before any of the effects of COVID-19 were beginning to take place.
“The slowdown does not mean go into a recession,” explains Toma. “Slowdown means deceleration, so the rate of growth was going to slow a little bit. That was the projection prior to all of our lives getting turned on our heads by this virus that’s going around.”
The economic monitor uses seasonally adjusted data, which means that fluctuations we see in our own local economy, like a slow tourist season in the winter, is factored out. The projected slowdown was based on other factors.
“Labor market indicators and housing market indicators were a little softer in Q4, and I think consumer confidence started to wane a little bit,” says Toma, “so just enough to turn things flat, but not related to the normal seasonal cycle we see everyday with our eyes. Statistically, that data is removed.”
So, when we will begin to see the effects of COVID-19 on these economic reports?
“I’m anticipating that at least through the end of April and probably halfway into May, we’re going to see significant shutdowns in the economy,” predicts Toma. “We do have a few indicators we can look at, and the rest is basically back-of-the-envelope type calculations.”
One factor Toma points to is the hotel occupancy rates in Savannah, which have suffered a reduction of over 90%. That decline likely mirrors the tourism industry here, which is a major driving force of our economy.
In turn, because tourists aren’t eating at our restaurants or buying gifts at our retail stores, those industries will slow down as well. Toma estimates that retail sales will likely decline by 30 to 40 percent, but that’s’ a rough estimate that will most likely be refined when the April data comes in.
Another factor is the unemployment rate, which nationally hit 6.6 million last week.
“At the national level, that’s up by a factor of about 25,” says Toma. “We went from about 270,000 weekly claims to 6.6 million. At the state level in Georgia, that factor is about 20—we went from about 6,700 to about 132,000. That’s a factor of 20 in two weeks.”
Based on that math, if the factor of 20 holds, Savannah will go from 500 monthly unemployment claims to 10,000 claims.
“If 10,000 people end up on the unemployment rolls, that’s going to push our unemployment levels at least to the 8-10% range, up from about 2.6%,” says Toma.
How can we get out of this certain economic crisis? The most important thing right now, Toma says, is filing for unemployment insurance benefits and making use of other fiscal policy programs available to you.
The fiscal stimulus package recently passed by the government includes $500 billion that’s available as direct payment to individuals, and $200 to $250 billion in unemployment insurance benefits.
Toma emphasizes that many of the requirements to file for unemployment have been waived, such as the work search requirement, and that individuals should check the Georgia Department of Labor’s website to find out what else they may qualify for.
Additionally, $350 billion in lending facilities and lending credit has been made available to small businesses. Eligible businesses can apply for and be approved for a loan in the same day, and the loans are forgivable if they are used primarily to pay wages.
“There’s an enormous amount of money being made available to small businesses, which is where a lot of us end up working,” says Toma. “Those small businesses really ought to be focusing on, how can I get the credit I need to get over this?”
That’s why the stimulus package is so important: it helps us get through this.
“Right now, we’re in a very uncertain economic time, and the idea is to create a bridge from where we were before this happened back to where we were when it started,” says Toma.
“It’s meant to get us past this point in time, which is unprecedented. We’ve never seen the economy shut down so fast ever, period. So what we don’t know is how long this is going to last.”
We can gather some clues from the Chinese economy, which is beginning to start back up again, and our country’s history of pandemics over the past century, which follow the pattern of a V-shaped recovery: a sharp decline and a relatively sharp recovery.
“The story I’m telling about a sharp decline in Q2, partial starting recovery in Q3, and more substantial recovery in Q4, that’s fairly consistent across most economic forecasts,” says Toma.
“Of course, just because that’s what everybody is saying doesn’t make it right, but I think conceptually it makes a lot of sense.”