Learning From Examples
Washington state is ahead of our timeline with COVID. One benefit of Chambers of Commerce is, we all have the same mission — to strengthen our businesses by connecting them, growing them, and advocating as a business community — because YOU enhance our quality of life.
We can learn where they are now as a predictor of where we will be. We are seeing how Chambers are assisting businesses and hence their communities.
Nothing emphasizes the need our community has for businesses that are closed than COVID-19. Our business community can leverage what they have already learned and they path those communities have formed to emerge strong.
We can emerge stronger!
A report commissioned by the Seattle Chamber’s insurance arm shows:
These are snapshots of Washington and New York:
- Massive job loss (40%) with either wage reduction or layoffs.
- Most jobs will start again. Some will not.
- [WISCONSIN’s Unofficial Unemployment estimate: 11%]
- Need for Virus Containment. The sooner the virus is contained/spreading stops, the better our economic projections. Focus must be on stopping the spread.
- Lower Income Impacted First. (ex. household incomes of $38k)
- All industries are affected. While working from home helps, all industries are affected. Few industries have temporarily increased demand (household supplies, and food).
- All hands on deck. All sectors need to work together on policy initiatives that guide resources to support workers most heavily affected.
There are similarities in greater La Crosse to what is included in Seattle Chamber’s report:
- Decline in consumer and business spending. Our economy, sustains itself largely with consumer spending. Quarantines, office closures and a severe change in spending patterns result in immediate losses to small businesses, and consumer-based business. The most vulnerable workers are hit immediately with loss of employment or loss of income, including independent and temporary workers and contractors, sometimes referred to as the gig economy. This net reduction in turn impairs many small businesses, particularly labor-intensive services-based businesses such as restaurants and visitor-dependent businesses.
- Event cancellations. Many organizations and companies depend on a few major events each year. Conferences, concerts, spectator sports, fund-raiser events and more are the cornerstone of many businesses, whether as the support industries or as the direct provider and beneficiary.
- Tourism and visitations lowered. Visitors to the region alter travel plans, including vacations in greater La Crosse, and more. The halt in hotel room purchases and visitor spending hits goods and services providers locally, including additional damages to restaurants and retailers (the latter of which have been challenged by on-line sales in recent years as well).
- Loss of wages and benefits to employees and contractors. As business revenues falter, employees and contract staff suffer immediate damages. Layoffs, employment termination, wage reduction, and cease of benefits will be immediate for business owners to reduce risk and liabilities. The wage decline will have immediate effect on housing, health care, basic needs, and consumer spending.
- Disruptions to supply chains and global trade. Factory closures overseas restrict access to key intermediate components and reduced demand in foreign markets for products and services. Our major industrial employers depend on the global supply chain to maintain productivity.
- Reduced activity in global logistics systems / transportation. Fewer products shipping means less work for various businesses and independent contractors throughout the global logistics system, such as owner-operator truckers, many of whom operate under thin margins, warehousing, and intermodal operations.
- Impacts on business productivity. Flight cancellations and remote work may adversely affect labor productivity, especially among services and tech firms that depend on face-to-face interaction for project work and to close deals. Technology in 2020 fortunately mitigates these losses tremendously through enhanced communication options (video conferences, file sharing and much more).
Again, this information is the pathway the Seattle Chamber predicts for their economy, which paints a pathway for our economy.
- Real estate, capital investments and asset value declines. Rent defaults will cancel some property investments under consideration (commercial and residential). Lenders will be asked to restructure and postpone debt service. Asset value will decline.
- Uncertainty and broader risk of a U.S. economic downtown and recession. The virus may likely be the event that pushes the U.S. and world into a recession, catalyzing sustained economic contraction which had been a concern off and on in 2019 leading into the virus impacts.
- Government revenues and fiscal impacts. If Wisconsin’s tracks like Washington, we’ll see dependence on retail spending and business revenues will see immediate impacts. Many businesses will be slow to return to full operations and return to normal state and local tax payments through the third quarter. State and local revenues will decline in 2020 as government spending increases to serve immediate needs. Difficult budget choices will playout in Q3 and Q4.
Consumption Decreases. This applies across all incomes due to Safer at Home policies. Heightened anxiety and fear of the virus, compliance with state guidance on social distancing, and wealth depletion. This altered spending behavior reduces demand for restaurant services and retails, the providers of which are often small business.
Less Foot Traffic. Many small businesses depend on daytime office workers.
Economic impact happening in Seattle:
- Retail, Hospitality and Restaurant & Bar Sectors. Operations have ceased except for drive-through and delivery service.
- WISCONSIN & LA CROSSE UPDATE: suppliers to these industries are experiencing losses – perishable food initially was lost and now milk production is in surplus, resulting in milk being dumped.
- Gig Economy. Non-employee workers or workers engaged in alternative work arrangements—temporary, on-call, contract, and independent workers or freelancers—have little to no chance for support during an economic shut down. Many non-employee workers are not entitled to regular employee benefits such as sick pay, workers’ compensation or health benefits. Many service providers, such as car drivers and trades workers, cannot work from home and lose their earnings to self-isolate. Moreover, the lack of worker protection and sick pay can force workers to work while ill, contributing to the spread of the disease.
- Tourist Attractions & Entertainment. Museums, art galleries, theaters, and entertainment venues are closed. In addition to lost admissions, artists are not getting paid.
Overall Uncertainty & Broader Risks of US Econonomic Downturn
Comparison to 2008-2009 Recession
The 2008-2009 was caused by an asset bubble in the housing market, unregulated lending practices, and opaque risk assessment. Its closest sibling was the Great Depression of the 1930s, requiring deep and extensive interventions from the federal government in the form of fiscul stimulus and quantitative easing to prevent the seixing of the financial system.
The current economic situation is the outcome of an exogenous, noneconomic event—the sudden incidence and spread of a new virus whose properties experts are still working to understand. The virus has adversely affected multiple sectors of the economy, including financial markets, consumer and investor confidence, disruptions to supply chains, and rapid reduction in travel and air transportation. These changes represent both supply shocks (from overseas factory closures early on) and demand shocks from reduced consumer and household spending.
The volatility and dramatic devaluations of equity markets further erodes consumer confidence. Many families, especially those saving for retirement, have seen their investments lose considerable value over a very short period of time, creating a negative wealth effect whereby
households and individuals feel less certain about the future and more inclined to raise their savings rate and reduce consumption. Nearly 70% of the U.S. economy is personal consumption, and 80% of U.S. growth.18
Any reduction in consumer confidence and spending would lower overall U.S. GDP.
Seattle released their rebuild strategies on March 17, 2020, before the Federal Stimulus Package was released, however much of the information is still relevant.
- Loosen Lending and Monetary Policy. Monetary policy includes the primary tools of the federal government, but lending support to borrowers
must be broadly implemented.
- Rent and debt service relief. Landlords, their financiers, and the federal government must collaborate to give renters and borrowers (commercial and residential) significant flexibility for three or more months after the virus is under control (which is an undetermined date at this point.) This must go beyond support for small businesses and include medium sized and some larger businesses as well. Offices with employees numbering into the several hundreds will face choices of paying rent or retaining employees.
- Direct payments and support (all sectors). Major employers with capital reserves have stepped into the role traditionally for government to provide direct assistance to small businesses affect in their area. Government provides grants and immediate relief. Employees and households will need direct support.
- Government spending. Capital investments must proceed. Infrastructure investments support communities directly and they create jobs that support local and regional economies.
- Fiscal policy shifts. Wisconsin and its cities depend primarily on sales and use and similar taxes, excise taxes, and property taxes. Cities and the state will find budgeting very difficult in the months ahead to cover the costs of spending critical for relief right now. New funding sources and new approaches to revenue management will be required.
Post expires at 5:05am on Tuesday October 6th, 2020