The coronavirus (SARS-CoV2) and associated COVID-19 disease pandemic have wrought tremendous damage to the world's health. But the pandemic, and the public health mitigation policies brought on by it, have wrought an equally large amount of economic carnage.
As the virus began to spread at the start of 2020, the economy showed signs of slowing. But the consensus among economists was that the nation should expect slow growth during the year, but no recession. However, the pandemic's first weeks saw individuals restrain from visits to retail outlets, recreation facilities such as gyms, and bars and restaurants. "Mobility" data provided by companies like Google and Apple showed visits to these locations slowing as early as the first week of March. This data is based on location pings on cell phones. When the virus spread started to accelerate, governments worldwide started to "lockdown" their economies, closing "non-essential" businesses and putting restrictions on essential ones. The predictable fall in economic activity started soon after that.
By the depth of the crisis in April, between 14% and 23% of the nation's workforce was unemployed. The civilian employment-to-population ratio, which we follow because it is a much more stable measure of the labor market's health, fell to an all-time low of 52%. In Illinois, the unemployment rate peaked at 17.2% in April, with 810,000 jobs lost. Regionally, the Springfield metropolitan area saw a peak unemployment rate of 14.2%, with 10,000 jobs lost. Looking at the economy's production side, Gross Domestic Product (GDP) contracted at an annual rate of 31.9% in the second quarter of the year. And the Industrial Production Index measure reported by the Federal Reserve fell by an all-time record in April. Manufacturing output had contracted by an amount unseen since the index started being measured in 1919, ironically during the last major pandemic to hit the United States.
A slow recovery started during the late spring. Once again, the forerunner was mobility. Visits to retail, recreation, and restaurants began trending up in May. By July 1, they had recovered to levels that were only 10% to 15% below the pre-COVID trend. Consumer spending likewise recovered, reaching similar levels. Unemployment rates have started to fall, with national and Springfield area estimates now under 10% and the state rate being around 11%. GDP growth is also forecast to recover. At the Institute for Illinois Public Finance (IIPF), we have developed a tool to combine many national economic forecasts into a single prediction. Our forecast captures the forecasters' past forecasting accuracy and their current estimates. This "nowcast" of economic growth shows a consensus forecast of 25% for the third quarter.
Locally, we are also tracking the recovery. Using "high frequency" data released by private companies, we have developed an index to track the Springfield area's economic recovery. The index is based on the growth of several important data aggregates such as mobility, consumer spending, employment, and small business revenue and closure data. We combine this data statistically using methods similar to those used by the Federal Reserve banks in tracking national and regional economic activity. Our index shows that the Springfield economy has been recovering since the middle of April. However, the recovery has slowed since mid-to-late June. The timing of the slowing coincides with a rise in the number of confirmed COVID cases.
Where will the economy go from here? There are many different opinions, but we think that the disease and associated mitigation policies will have a disproportionate effect on the recovery's speed and depth. As we see in the Springfield high-frequency index, case counts show a strong correlation with economic activity. In a recent presentation about the pandemic and the economy, we heard a speaker comment that "Good public health policy is good economic policy during pandemics." Given the data thus far, we agree. Stopping the spread of SARS-CoV2 and mitigating the impact of COVID-19 are vital to restoring the economy and ensuring public health.
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This article was originally published in September 2020 as part of The CPAA Journal - Fall 2020 edition.
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Kenneth A. Kriz, Ph.D. is University Distinguished Professor of Public Administration at the University of Illinois at Springfield. Dr. Kriz conducts research focusing on subnational debt policy and administration, public pension fund management, government financial risk management, economic and revenue forecasting, and behavioral public finance.
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