In Wyoming, as well as the rest of the country, we can now reflect back on the recent process of shutting down the economy. It was almost like turning off a light switch. One day in early March, things were normal and the next, everything seemed to shut down.
Unfortunately, as we’re about to discover, it doesn’t work that way in reverse.
For all of our eagerness to get back to the way things were less than two months ago, public officials and other citizens will soon learn the hard way that restarting an economy is more like pushing a rope than flipping a switch.
One measure that offers a sense of scale to the task ahead is unemployment. Wyoming workers filed more than 30,000 claims over and above seasonal norms in the last six weeks. That’s out of an overall private workforce of approximately 280,000 workers. Put another way, almost 11% of Wyoming’s workers lost their jobs in a blink. Similar statistics exist throughout the United States. The current unemployment situation is being compared to the Great Depression years beginning in 1929.
To understand why it will be so challenging to get all those folks back on the job, it’s helpful to examine the hurdles some of the sectors they worked in now face.
Wyoming is home to only a limited amount of manufacturing, but this sector has far-reaching implications for the state’s well being, and it faces many challenges. Consumer behavior points to downward demand pressures for its products. Many industrial manufacturers will also face cash-flow shortages and challenges in managing debt obligations. The CARES Act and successive legislation helped address anticipated liquidity issues for many, but some industrial manufacturers will struggle to recover — and many may opt to go out of business instead.
Another hurdle this sector will contend with is major global supply-chain disruptions. During the Great Depression in the 1930s, supply chains were much shorter and simpler and consisted entirely of domestic vendors. Disruptions — problems getting the parts or materials needed to make the end product — were limited and easier to solve, when they existed at all.
Today, however, supply chains are sprawling, complex, international webs with countless interdependent links. Components often come from vendors in other countries. For many manufacturers, components originate from several countries, while many complex arrangements among secondary vendors further complicate supply chains. An interruption in any one of those links — say a factory in Taiwan or a warehouser in Mexico — can grind the whole system to a halt, leaving a Wyoming manufacturer without the supplies it needs to do the job.
Because the COVID-19 pandemic is global, the disease impacts different countries at different times and levels of intensity. This means that businesses recovering from the virus impact in the United States must contend with concurrent virus challenges disrupting the countries of suppliers and supplier’s suppliers. In other words, long supply chains will recover in fits and starts as the disease ebbs and flows in different nations. In extreme cases, companies may need to find new sources of components or perhaps produce them internally, with further challenges of cost containment likely to emerge.
And that’s just the manufacturing supply side. What of demand and other critical factors? It’s uncertain as to whether consumer preferences will change after the pandemic abates. There is an increasing likelihood of added government oversight and regulations — standards for disinfecting and extra work space requirements, for example. These and other regulatory factors all add costs and uncertainty to businesses. There is also the risk that directives from federal and state policy makers will delay the beginning of recovery or interrupt it once it’s begun, adding considerable time to the arduous process.
To add to the uncertainty mix, there’s also a high-profile election this fall — one that many believe is important for their future.
These and other challenges all suggest that restoring vitality to the industrial manufacturing sector will come at a higher cost than before COVID-19, and will happen gradually over an extended period of time. It will also come with lower net returns to owners. Although some business surveys suggest the recovery will return to previous levels in a matter of months, there are many reasons why it may take longer.
The crash of 1929, marking the beginning of the Great Depression, in many ways resembles what is economically observed today. It is generally accepted by economic historians that the recovery involved a period of nearly four years. In that instance, recovery was short lived because another recession began soon after in 1937.
The vacation travel industry is another critical sector for Wyoming and it too will have issues to deal with. Most of the retail and service infrastructure of the industry has been shut down by government decision makers.
Of course, the first necessary step for recovery in the travel sector is to reopen these establishments without unworkable government regulations. For example, when sit-down business resumes for restaurants, lounges and other travel and hospitality venues, mandatory social distancing measures may be imposed. Such regulations could reduce sales far more than they reduce labor and other costs, making some enterprises — many of which already operated on razor-thin margins — nonviable.
Any recovery will happen under an unusual set of circumstances. First, the contagious characteristic of the COVID-19 virus has provided a risk that makes visitors unwelcome at the present time not only in Wyoming, but in most of the world. Second, vacationers will need to be convinced that the locations they plan to travel to are safe from the virus. In short, right now states don’t really want visitors, and visitors don’t want to come anyway.
Since vacation travel spending is discretionary in nature, plans for this type of leisure are very fluid. Developments and updates about the status of the virus can significantly impact vacationers’ intentions from one week to the next. Recent past experience and new survey findings uniformly indicate that when perceived health risks are significantly reduced, travel plans change very quickly.
Development of a widely-available COVID-19 vaccine would no doubt be the single biggest breakthrough for the tourism industry. The inherent nature of vacation travel involves activities that belie the possibility of social distancing. According to experts in the travel industry, the long-term recovery of the industry hinges heavily on this medical advance.
There are other larger economic considerations that in the end will also have a marked influence on the long-term recovery of the travel industry. Loans and grant programs must continue for high-overhead businesses such as hotels. A national long-term recession would produce continued struggles in this industry. Fortunately, absent the uncertainties discussed here, the vacation-travel industry has historically been one of the first economic sectors to recover once other sectors of the economy begin to stabilize. However, one must be realistic and face the very high likelihood of very poor near-term prospects for the industry.
The healthcare industry is perhaps the most surprising economic sector to experience staggering financial impacts. Over the last two months, discussion of hospitals centered on available capacity and the concern that state facilities would fall far short of what would be needed for COVID-19 patients. Consequently, state and federal authorities encouraged hospitals to delay elective procedures and even some conventional medical care to conserve capacity for an expected surge of coronavirus patients.
Thus far, except for a couple of hospitals, a flood of COVID-19 patients has not arrived. As time passes, it seems less and less likely such a surge will happen. If we assume that 15% of patients with the virus are hospitalized — a rate that has been attributed to Wyoming Department of Health — then up to now only about 55 of the 370 individuals diagnosed with the virus in Wyoming have needed to be admitted. This is slightly more than one admission in the entire state per day since the first Wyoming citizen was diagnosed on March 11.
There has been a much larger surge of another kind though — a wave of delayed or canceled care and procedures. The result of this re-ordering of patient prioritization has been massive economic losses for Wyoming hospitals — millions of dollars of lost revenue in two short months. In response to this, hospitals in Wyoming as well as in adjacent states have reduced hours and even made significant layoffs. Although some of these patients will still arrive for services later, these losses are not easily made up. Most of these facilities are nonprofit and typically operate with subsidies. Even so, most hospitals in the state operate on thin margins.
State or federal help will be required to recover the accumulated losses from COVID-19 if our hospitals are to be sustained. Assuming that takes place, the recovery of these important local facilities will occur and will be able to carry on into the future. If it doesn’t? I hope we don’t find out.
One common thread runs through each of the three sectors we’ve considered: They’ll all require time for a full recovery. Just how long they’ll need is subject to uncertainties that are far beyond the control of the businesses that comprise them.