It’s clear the economy is taking a pounding from the ripple effects of COVID-19, but just how bad are things likely to get?
Bad, but eventually the economy will rebound here in Oregon. That’s according to an economic outlook put out recently by state economists. Following are highlights from reports issued by the Oregon Office of Economic Analysis and the Oregon Employment Department:
1. Things will get better“While this recession is extremely severe — the deepest on record in Oregon with data going back to 1939 — it is expected to be shorter in duration than the Great Recession. The economy should return to health by mid-decade. The reasons for the faster recovery include the fact that there were no major macroeconomic issues or imbalances prior to the virus, much of the initial severity of the recession is due to suppressed economic activity, and the federal policy response, however imperfect, has been swifter and more targeted than in recent cycles. Combined, these factors should help limit the amount of permanent damage done to the economy during the shutdown phase.
2. Things are different this time“The swiftness with which the economy went from being strong to being in recession does not look like any other business cycle. The path looks more like what happens to economic activity during a labor strike, or in the aftermath of a natural disaster. However, when a strike ends or the rebuilding phase begins following a disaster, economic activity quickly returns to previous levels. Unfortunately, that will not occur this time for the simple reason that the virus is not fully under control … The unemployment rate will remain in record territory.”
3. Expect structural changes“Over the long run, the economy is likely to see some structural changes as it always does during recessions. Comparing our current forecast with our previous one indicates that most of these structural changes are centered around trends in the goods-producing industries and retail. A key issue among goods producers is turning off the lights is relatively easy, but turning them back on is not as simple as flipping the switch. Goods production relies more on complex, international supply chains that when broken, are not easy to put back together again. Even a relatively short disruption as expected today is likely to leave lasting scars for many of these industries.”
4. A lot rides on housing“Natural resources (mainly logging in Oregon), wood product manufacturing, and residential construction are all about current demand for housing. There are noticeable declines today due to job loss, fewer people migrating, buying or renting. However, these industries are expected to rebound in a couple of quarters as the overall economy improves. Increased demand will be due to both larger migration flows, but also stronger household formation rates among current residents as their incomes and confidence return … Nonresidential construction, on the other hand, is likely to take longer to come back than residential. A key issue here will be the increase in vacancies in offices, warehouses, industrial parks and the like as firms close due to the shutdown and recession.”
5. Retail will take a deeper hit“Traditional retail is likely to see an increase in closure due to the shutdowns and lower levels of employment moving forward. Our long-term trajectory for the industry is lowered noticeably, even despite the initial snapback expected later this year as customers return to the showroom floor. Sectors expected to see noticeable but not as severe or persistent damage include education, and other services…We are likely to see some gyms, nail salons, and the like close during the recession. Additionally, service and membership organizations are seeing less charitable contributions, hurting their financial viability.”
My takeaway? This is going to continue to be a difficult, damaging economic storm we are in and things will get worse before they improve. And even when that improvement does come, the economic landscape will look significantly different then it did a year, or even just a few months, ago.