Economy may take two years to recover from virus impact

The state’s economy has been rattled by the coronavirus outbreak, and it’s going to take some time to recover.

Patrick Barkey, Executive Director of the Bureau of Business and Economic Research at the University of Montana, said the nationwide economy and Montana’s own economy are hurting from the virus, and hurting fast. Barkey presented on the state’s economical situation via a virtual call with members of the press last week.

Showing a real Gross Domestic Product forecast by IHS Markit that depicted predictions for 2020 and the sharp decrease in the first quarter of the year due to the virus, Barkey said the drop has come faster than most declines in recent history.

“This forecast shows a very large decline in 2020. That decline in U.S. economic activity is deeper and faster than the Great Recession, by several orders of magnitude. So this will be a very harsh recession, the steepest one since World War II in the national economy,” Barkey said. “The good news, if there is good news out of this, is that the rebound after the depths of the recession in 2020 is also expected to be pretty pronounced.”

The contraction in the Montana economy ends a nine-year period of growth in the state.

In terms of job loss, Barkey said the forecasts average about 50,000 jobs lost in Montana in 2020, though that’s an average and takes into account worse and better parts of the year.

“It’s expected that the decline right now is steeper than that, and by the time we get to the last three months of the year, the expectation is that there’s going to be some return to growth to end 2020, so by the time you average it all over all those four quarters, you get about a 50,000-job decline,” he said.

Personal income this year will also come in about $3.9 billion lower in the state than originally projected, about a 7% dip.

The northwest corner of the state is suffering most in job loss terms compared to the rest of the state.

According to the BBER’s data, the northwest corner is looking at about 16,000 jobs lost between December and April. The southwest comes in next at about 12,000 and the south central part of the state shows about 11,000 jobs lost.

For the northwest, it comes down to more jobs that are affected by the virus, Barkey said.

“The northwest loses more jobs because … the northwest has the highest employment total, but it also has to do with job mix, with the northwest and southwest having more tourist related activity, which is expected to bear a heavier blow from the COVID in terms of personal consumption and the changing nature of the U.S. economy,” he said.

One particular industry affecting the northwest — and Whitefish — will be tourism.

Barkey said tourism, both nonresident and domestic, will be hit this year.

“Tourism is, like a lot of industries, really challenged, particularly because of the travel issues,” Barkey said. “Montana remains, relative to other domestic destinations, far away and hard to get to, which is of course part of our allure, but that makes the closer destinations a little more attractive to people more worried about contagion.”

Moving forward, Barkey said he sees things getting better based on projections, but it’s not going to happen fast.

“The expectation, which is fraught with peril because we are trying to forecast something which is outside most of our experience, we do expect to see a pretty strong return to growth. But even with that strong growth, it’s going to take awhile,” he said.

“It’ll take at least two years to get the economy back to its trend,” he added. “Where it was before is already in the rear view mirror. So depending on what you’re measuring, if you’re measuring personal income, we would expect to see, absent this kind of extraordinary event a certain amount of growth take place. So when I say the economy by year 2022, both in terms of jobs and personal income, catches back up to trend, that means that not only have we surpassed where we were before, but we’ve caught back up to the path the economy was expected to have before this all happened.”

As to whether the BBER’s projections take into account Montana Gov. Steve Bullock’s reopening plan for the state, Barkey said that hadn’t yet been announced when the data was put together.

However, he said he’s not too trusting of any projections made during an unprecedented event.

“All of these projections make assumptions. That’s what you have to do when you forecast. You have to make some assumptions and you try to base those assumptions on past experience. In the case of the IHS Markit forecast, that forecast builds off of the previous experience of the U.S. in pandemics. There’s the Spanish influenza, but there have been other pandemic events much less severe,” he said. “Our assumption was that the economy is going to reopen, I think that is a no-brainer, we can’t stay closed forever and I think everyone appreciates that. In terms of what exactly the pace is of that, that’s where I’m most worried that our assumption is open to doubt in terms of whether there’s a fall comeback in infections or even something earlier, if we have several up and down cycles before we finally get on the up — that’s open to doubt.”

To see the BBER’s study, visit http://www.bber.umt.edu/pubs/econ/CovidStudy.pdf.