The economic devastation wrought by the COVID-19 pandemic is far worse than a group of University of Montana economists predicted just a month ago, according to a new report. In fact, they predict Montana will now lose 75,000 jobs over the course of the year — compared to their original projection of 51,000 — and the economy will take much longer to recover.
The Bureau of Business and Economic Research at the University of Montana has released a revised economic analysis of the economic impacts of the pandemic that builds upon more data than was available for the preliminary report in April.
"The updated estimates paint a bleaker picture of the economic downturn caused by Covid-19,” the new report states. "The impacts of disruptions caused by social distancing, supply disruptions and the upheaval in energy markets has combined to produce a lower estimate of U.S. economic activity, which translates into a harder hit and a slower recovery to the state economy as well.”
In April, the Bureau predicted a shortfall in state personal income of $3.9 billion, a 7.1% decline. Now, they’re estimating that personal income in Montana is expected to be $6.4 billion lower in 2020 compared to 2018, an 11.7% drop.
The Bureau is also predicting a slower economic recovery in the state, with worse performance in both jobs and income, relative to pre-COVID-19 projections, extending beyond the year 2022.
"In the space of a single month, the assessment of the short-term economic outlook has significantly changed, in this case, for the worse,” the report noted. "In another month, it could change again. The speed with which the public health situation has changed because of the virus has translated into rapidly changing economic conditions that are reflected in forecasts. Those utilizing these projections as the basis for making decisions should appreciate that fact."
The economists still predict that northwest Montana, a region that includes Missoula and Ravalli counties, will lose the most jobs at roughly 25%, although they explained in April that is in part because the region has the most jobs.
"The most populous Northwest region now registers a decline of 25,000 jobs relative to the pre-Covid-19 projection, or about a third of statewide employment declines,” it states.
Patrick Barkey, the director of the BBER, said the decline of the economy in such a short period is unprecedented.
"There remains little doubt that the Covid-19 pandemic has produced a recession that is more severe than anything Montana has experienced in the postwar period,” he and his team wrote in the report. "The U.S. economy has already experienced a sharp contraction in the first quarter of 2020, and when the comprehensive data for Montana economy become available doubtless they will indicate the same."
They stated in the April preliminary analysis that the forecast of the trajectory of the recovery was made with less confidence than the assessment of this downturn.
"The revision that we have made to the forecast for Montana’s recovery bears this out," they wrote.
In the space of a month, the BBER has increased the severity of the fall in the state economy by nearly a third, and downgraded the speed expected in recovery.
"Taken together, this prediction has pushed back the year the state can expect to climb out of its economic hole and catch up to pre-Covid-19 projected growth,” Barkey continued. "All of these projections would benefit from more complete data, which are slowly becoming available. But the fundamental story being told in all of these forecasts is undeniable — the state is in the midst of a severe recession that is outside the bounds of anything we have experienced since World War II."
Given the speed at which events continue to unfold, he said the journey back to growth and full employment may be faster or slower than currently anticipated.
"But the effect of the pandemic will be felt in the state economy for years," he noted.
Barkey went on to say three forces are in play that have caused national economic forecasters to predict a deeper decline and slower-paced recovery in subsequent years. First, new information suggests that distancing has had broader negative impacts than previously thought. Second, there is a more pessimistic assessment of the number of job losses that will be permanent and, third, a worse outlook of the impact of the upheaval in oil markets.
Barkey cautioned that the situation is fluid, and his organization is just trying to help people get a clearer picture of the high degree of uncertainty involved in predicting the path of the economy in the face of this challenge.
The IHS Markit, a London-based financial research and analysis company, forecasts U.S. real GDP will decline 7.2% in 2020, which is much more severe that what the economy experienced in the Great Recession of 2007-2009. The same forecasting firm also predicts a slower trajectory of growth in the following years, with economic activity not catching back up to the pre-pandemic growth trend until 2024.
The BBER found that the health care industry is projected to be the biggest loser of jobs in Montana, with a decline of more than 15,000 jobs compared to the pre-pandemic projections.
"This reflects the expectation that the cratering in discretionary health care spending that was evidenced in the first quarter of this year will persist into the summer and fall,” the report said. "The revised forecast continues to show significant job losses in retail trade, accommodations and food and other services employment, as was the case for the forecast we made in April. There are significant second round losses appearing virtually in every industry, with the exception of Federal government employment.”
With regard to personal income, the report found that the state economy will underperform compared to pre-pandemic projections until at least 2022.
Barkey said that in every recession or depression, even ones such as this where the lockdown was so immediate and purposeful, there are permanent job and business losses. That means people shouldn’t expect the economy to simply pick up where it left off if there isn’t a second wave of infections.
“It’s a time when there’s always a reorganization of economic activity,” Barkey said. “Some things are not picked up and resumed. But there’s also new opportunities out there as well, growth happens. But it doesn’t just go right back to where it was, particularly with something this severe. Every institution is going to be re-tooling what it’s doing. Tourism is going to have a terrible year, that’s a given, but even in an industry like that there are new business seeds being planted.”
The economists predict there will be big drops in on-premise food consumption, health care spending, recreation, car purchases, furniture and airline ticket sales.
Barkey said the BBER won’t have another projection until summer.
“We revised it this time to make a point, and that’s that it is a very fluid situation,” he said.
The full report is online at https://leg.mt.gov/content/Committees/Interim/2019-2020/Revenue/Meetings/May-20-2020/BBER-CovidStudy.pdf.