The economic crisis resulting from the COVID-19 pandemic has no real historical precedent, not even the Great Depression, Chris Erickson, a professor and the interim department head of economics at New Mexico State University, told the Starkville Rotary Club via Zoom at its Monday meeting.
Therefore “humility is required” for economists when discussing and analyzing the crisis, he said, but one thing is quite clear.
“The longer it takes us to bring COVID under control, the more likely we’ll be in a prolonged recession,” said Erickson, a member of the National Economic Education Delegation.
NEED is a nonprofit of professional economists seeking to “promote economic policy literacy by putting mainstream economics in front of the general public,” according to its website.
Erickson said the second quarter of 2020 saw the sharpest drop in gross domestic product (GDP) in U.S. history, with 9 percent. Early data from the third quarter shows a recovery of 7.4 percent, but it still will be the second-worst quarter on record, second only to part of the Great Recession in the late 2000s, he said.
Economic downturns usually affect either supply or demand, but the pandemic has had an adverse impact on both, Erickson said. Employers have reduced their labor supply to minimize exposure to the virus, and consumers have reduced their consumption and driven demand down for the same reason.
Many states and municipalities throughout the U.S. placed restrictions on business and social activity in the early months of the pandemic, creating spikes in unemployment and drops in revenue.
“Obviously lockdowns and imposing restrictions on businesses … have a very negative economic impact, but the evidence is pretty strong there’s a positive impact, that it does help to stop the coronavirus spread,” Erickson said.
The hospitality and service sectors of the workforce initially struggled the most, and the long-term impact could be “elevated unemployment for these workers for some time,” Erickson said.
As a Southeastern Conference college town, Starkville’s hospitality industry is crucial to its economy. The city’s overall sales tax revenue has bounced back from the hit it took early in the pandemic, Mayor Lynn Spruill told The Dispatch, but its food-beverage and hotel/motel sales tax revenue is still struggling.
The city has not yet received the tax data from August, the first month that people who have been unemployed due to the pandemic did not receive $600 per week from the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
The act expired July 31 and Congress has yet to pass an extension, which Erickson said is a mistake.
Spruill said she is still hopeful that Congress will approve some form of financial relief, though she said $600 per week was “extremely generous.”
“I think somewhere in there, there’s a happy medium, and it would be extremely beneficial if (Congress) would pass another CARES Act that … still allows people to have some supplemental income during a time when things are tight — particularly in the hospitality industry, which depends on tips and the kinds of things that occur only when people come to their businesses,” Spruill said.
The city has required protective face coverings and social distancing inside businesses since July, and Spruill said this hopefully encourages the public to contribute to the local economy while remaining and feeling safe.
Starkville will not reap the economic benefits of a Mississippi State University football game this weekend as originally planned. A COVID-19 outbreak on the team forced MSU on Monday to reschedule Saturday’s home game against Auburn until Dec. 12.
Spruill said there might be a silver lining to this change if it holds up.
“Hopefully in December it will make up for (this weekend) because it will be Christmas shopping time,” she said.
Tess Vrbin was previously a reporter for The Dispatch.
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