Economic impact of coronavirus in Louisiana may be akin to a hurricane, flood, but with big uncertainties

Advocate, The (Baton Rouge, LA)

Mar. 22--Casinos, bars, gyms, movie theaters, schools and universities are closed, gatherings of more than 50 people banned. Stores shuttered by numerous national retailers. Restaurant owners, stripped of dine-in customers, are limited to take-out or delivery services.

Grocers are scrambling behind nervous shoppers to find and restock high-demand staples and products on their shelves -- in contrast, actually hiring people to keep pace with sales.

The coronavirus scenario has a familiar feel to it.

"People are acting the same way they do before a hurricane," said Loren Scott, a long-time Louisiana economist and consultant who retired from LSU and still tracks the state's economy in annual forecasts. "This is going to pump up retail sales initially; then there will be this great lull as they are going through their stockpile."

The big difference from the reaction to the coronavirus: hurricanes usually make a regional impact. This outbreak is like dozens of hurricanes hitting cities and states all across the country at the same time, with businesses and millions of people hunkering down to ride out the storm, Scott said.

The problem: It's difficult to know when this ends and how deep the economic pain will be. A minimum half-year national recession already is in economists' projections, even as federal and state governments pledge dollars and plan ways to support laid-off workers in an economy on edge.

"Louisiana's economy has already been on the brink of recession for the last 12 months," said Gary Wagner, professor of economics at the University of Louisiana at Lafayette. "We're particularly vulnerable at this point," he said.

"I think it is going to depend on how many workers are displaced and for how long," Wagner said. "I've never seen so much uncertainty."

The shutdowns imposed by the state are until April 13 -- perhaps longer, if necessary, to contain the spread in Louisiana of the coronavirus that has spread across the world.

Economic impact

"If we see employment drop by 1% and it lasted for three months in a row, we will see state (gross domestic product) fall by 1.2%," Wagner said.

For every 1% drop in employment in Louisiana, income decreases by 0.4% as a general rule of thumb, he said.

About 14% of jobs in Baton Rouge are at high risk of being disrupted or lost because of the coronavirus, according to an analysis by the Brookings Institute.

Some other parts of the state are at a higher risk than Baton Rouge because they are more closely tied to the most-impacted industries: oil and gas, transportation, employment services, and travel, leisure and hospitality, or tourism. In Houma, about 29% of jobs are at high risk, which was No. 8 in the nation; about 23% in New Orleans; and 21% in Lafayette are at risk, according to Brookings. Put numbers of jobs at risk to the percentages and it's 127,000 in New Orleans, 55,000 in Baton Rouge and 41,000 in Lafayette -- and statewide total of 287,000.

Houma and Lafayette are threatened even more, with a deep plunge last week in oil prices.

Unemployment stats

In just one week since the coronavirus-related business shutdowns started in Louisiana, 47,000 people had been able to file unemployment insurance benefit claims with the Louisiana Workforce Commission on a website that was being overwhelmed and crashing last week. That was 30 times the volume of an average week, which produces about 1,500 claims.

With travel and tourism disrupted, Louisiana's hotel industry alone has lost 16,631 direct jobs because of the coronavirus pandemic, according to figures released Friday by the American Hotel and Lodging Association. The industry has lost 49,138 total jobs supporting hotels, the organization said. Forty-four percent of hotel employees in every state have lost or are projected to lose their jobs in the coming weeks, the group said.

The wave of workers seeking unemployment claims could get much bigger down the road if closures are extended since many large employers, such as casinos, are still paying wages to their displaced workers through at least the end of the month or beyond into April.

The unemployment rate in Louisiana pre-coronavirus stood at 5.7% in January, up from 5.2% a year ago in the most recent data available. By comparison, the U.S. unemployment rate was 3.8%, down from 4.1% a year ago.

Louisiana's nonfarm employment declined by 7,400 jobs over the past 12 months through January, a drop of 0.4%, led by a big drop in construction and manufacturing jobs. Six of the state's nine metro areas lost jobs. Baton Rouge was down 4,200 jobs, or 1%, and Lafayette, 300 jobs, or 0.2%, while New Orleans was on an upward track of 4,400 jobs, a 0.8% gain.

Louisiana entered a lull with the completions from a wave of construction of huge liquefied natural gas export facilities in south Louisiana and expansion of petrochemical plants feeding off of low natural gas prices. Another wave has been expected, if companies follow through on billions of dollars of announced projects.

Recession and recovery?

Nationally, Scott has cited Wells Fargo financial analysts who expect the previously bustling U.S. economy to contract at an annualized pace exceeding 3% during April-June and by more than 2% during July-September before returning to growth at the end of the year. The impact over the next two quarters make for a more or less "average" recession, the Wells Fargo analysts said.

"This is one of the worst (economic forecasts) I've seen for Louisiana, where cases of coronavirus are spiking," Scott said. "The really hopeful outlook would be that by the end of May this might be resolved," he said of the outbreak.

A Goldman Sachs economics team late last week painted an even dimmer national economic picture of a 24% second-quarter drop-off, on top of a 6% decline for the current quarter, before turning positive at 12% and 10% the final two quarters of the year. The annual impact: a 3.1% decline.

"The stock market gave us a projection that it believes there will be a major economic downturn. Now we have to see if that is what happens and how deep will the recession be and of what duration," said James Richardson, a professor of economics at LSU who had served as an economist on the Louisiana Revenue Estimating Conference.

"Some of these items can be corrected fairly quickly if the virus is contained and society can return to a more normal schedule. It will not occur overnight, but should happen within 12 months or so," Richardson said.

Flashback to 2016

For a reference point in the Baton Rouge area, flash back to 2016: flood-damaged houses and businesses gutted, laid empty, with debris piles lining street after street; people and workers displaced as they made repairs.

In East Baton Rouge Parish, about 8,000 businesses employing 143,700 workers were impacted by the flooding, according to the Louisiana Economic Development department. Lost labor productivity was $213 million and business disruption losses $540 million.

Across Louisiana, flooding that year disrupted about 20% of businesses, or about 19,900 employers, according to LED. About 14% of the state's workforce, or 278,500 residents, were not able to work temporarily because of issues ranging from dealing with their flooded houses to business disruption or transportation issues. After the floods, about $300 million in economic activity was lost and $836 million in business disruption losses.

Many business and home owners did not have flood insurance, but, slow as it was, federal disaster dollars trickled in to help repair the damage.

Federal stimulus package

With the coronavirus, Congress and the White House are figuring out the components of an estimated $1 trillion to $2 trillion national economic rescue package. Efforts also are underway to expedite Small Business Administration loans, but not quickly enough for businesses in dire need, those applying in Louisiana said last week. In addition, many banks have adopted loan and mortgage payment deferral and other policies to help customers.

"I think it is very unlikely that Louisiana or the nation avoids a recession regardless of what stimulus plan may eventually be enacted," said Wagner, the University of Louisiana at Lafayette economist. "If a stimulus package is targeted to individuals and to small businesses, it would certainly lessen the sting, but I do not think it would be enough for us to avert a recession entirely," Wagner said.

"I think we should focus on the people who are suddenly losing their jobs -- through the unemployment insurance trust funds," Richardson said.

"This will more directly deal with the persons who are at the tip of the downturn. This will not stop the downturn, but it may assist in reducing the ripple effects, such as persons not being able to pay their mortgage payments or people not being able to purchase necessities due to limits on their charge cards."

In Louisiana, the Louisiana Workforce Commission, though having website issues, has sped up its claims process and temporarily waived job search requirements. The agency and state revenue department also have said Louisiana businesses are getting a two-month deferral on making their first-quarter unemployment tax payments and state sales and excise taxes.

The first wave of unemployment checks is expected to go out this week. Normally, there is a one-week waiting period, but claims are being reviewed immediately, officials said. The maximum weekly benefit is $247.

Louisiana's trust fund is one of the strongest in the nation, with more than $1 billion in assets. A state official said that even if no money was paid into the fund, the state could make unemployment payments to every displaced Louisiana worker for 17 months.

However, Richardson said as states begin drawing down their trust funds, the federal government should supplement them to help laid-off workers and prevent reductions in benefits or additional payments from employers.

Oil price collapse

Exacerbating Louisiana's economic situation is a severe downturn in already low oil prices, triggered by wide-open production in Saudi Arabia and Russia. That feud started after previously cooperative Russia declined to participate in a move by the 14-nation Organization of Petroleum Exporting Countries to trim output to support oil prices. Over the past week, prices fell below $20 per barrel with the glut of oil and less demand created by the coronavirus. That's bad news for energy producers and service companies that support them, in Lafayette but even more so in Houma-Thibodaux.

Energy companies and related businesses comprised 29.4% of the more diversified Lafayette-area gross domestic product as of October 2019, according to the Lafayette Economic Development Authority's analysis of federal data. That was down from 45% in 2015, and roughly 70% in the 1980s. The reduced dependence on oil and gas has helped Lafayette avoid the fate of Houma, which historically is home to a similar mix of businesses.

"If prices stay in the $20 to $30 bracket for very long, it will push out some producers, especially in the U.S. where the market operates freely. It will have an impact in Louisiana where we have many small independent oil and gas producers," Richardson said.

"All these changes will work their way through the Louisiana economy," Richardson said of the rock bottom oil price and impact from the coronavirus.

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