The coronavirus will hammer the Michigan economy. The only question is how much.


The economic shock from the coronavirus will spread across Michigan, hitting nearly every industry and community, taking billions of dollars from paychecks and tax collections, experts say.

The layoffs and time off have already hit the restaurant, travel and hospitality industries, and then are expected to spread to nearly every segment of the economy, from automakers and home builders to small businesses, said the experts.

Patrick Anderson, CEO of the Lansing-based Anderson Economic Group, which provides economic analysis for private companies, nonprofits and governments, predicts that up to 1.4 million of the 4.7 million State workers will be relocated over the next 45 days.

“We have to deal with the large number of Michigan residents who will be laid off in one way or another over the next 45 days,” Anderson said.

Other estimates aren’t as dire, but Courtney Nichols, a labor attorney at Lansing, has warned companies to expect at least eight weeks of significant economic hardship.

As of Monday alone, the number of jobless claims in Michigan climbed to 5,400 from a daily average of 1,300 to 1,600 on the same day Governor Gretchen Whitmer ordered the temporary closure of all bars, restaurants, cinemas, libraries and other public places.

“This is uncharted territory and I have been doing it for a long time,” said Jim Stansell, senior economist and associate director at the House Fiscal Agency.

“The difference now is in the past when we entered a recession there was an underlying reason. The real estate bubble has burst. Or the tech bubble has burst. Today, businesses are closing because of a virus. How long can they survive?

The 1.4 million workers potentially affected – not all of them will be unemployed – is seven times more than the 210,000 unemployed workers reported in January, the most recent estimate. This is almost double the number of unemployed in June 2009, when 725,000 were unemployed during the worst month of the Great Recession.

“If anything, even remotely, nearly 1.4 million people lose their jobs, it would be unlike anything we’ve seen since 1933,” Charles Ballard, Michigan State economist, wrote in an email. to Bridge, referring to depression.

Ballard warned that there are many variables, including potential federal and state aid programs for workers.

“I hope it doesn’t go that bad, but I don’t think we can rule out some really bad employment results,” Ballard said.

Economic shutdown

In the weeks following the detection of Michigan’s first coronavirus case, Whitmer ordered all K-12 schools closed, businesses closed and called for a ban on gatherings of more than 50 people.

The restrictions already ordered by Whitmer, as well as how the pandemic will affect the economy, could result in the loss of 124,000 jobs in the second quarter, according to Gabe Ehrlich, associate director of the quantitative economics research seminar at the University of Michigan. . .

His forecast calls for another 31,000 job losses in the following quarter. Together, this would further double the number of people currently unemployed.

But he said the worst-case scenario could be much more serious.

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Morgan stanley predicted a 9 percent drop in auto sales this year, which would affect domestic automakers, still among the state’s largest employers.

But Ehrlich said some of the biggest job losses will be greatest in economic sectors “that require a lot of social interaction,” such as travel, hotels and restaurants.

“These are lower paying jobs to start with. So that’s part of what makes it even more painful economically,” he said.

Stansell, the economist for the House Fiscal Agency, said he “was hesitant to draw conclusions because every day things get worse.”

I see new reports that say it will be a three-quarter recession, that we will have 6% unemployment next year, that we may not see full employment until 2024, ”he said.

Citing the economic losses, Whitmer on Monday requested an emergency disaster loan statement from the US Small Business Administration. The loans provide up to $ 2 million in assistance to small businesses to cushion temporary income losses.

Whitmer wants to tap into the $ 1 billion Congress made available this month for low-interest SBA loans to small businesses, small farmer co-ops and nonprofits suffering substantial economic losses due to the pandemic. The Whitmer administration expects its request for SBA disaster assistance to be completed this week.

Michigan Economic Development Corp. stated that his call center is available to support businesses requesting assistance through the state program. And the state’s economic development agency stressed it would provide working capital to businesses during this time of economic uncertainty. Additional resources are available at MichiganBusiness.org and the Michigan Small Business Development Center COVID-19 websites.

Losses could hurt travel and food industries

In the food industry alone, there are nearly 400,000 workers in Michigan. The travel and tourism industries, which have nearly 350,000 workers and generate $ 26 billion a year in spending.

As the crisis continues, economists predict there will be further losses as well: Employers will find it difficult to stay open if workers have to stay 6 feet apart; workers will be reluctant to work as infections increase and supply chain issues could affect all manufacturers.

There are over 600,000 manufacturing workers in the state and last summer their average wages were $ 1,260 per week.

“For automakers, there is a double whammy,” said Ballard, a Michigan state professor. “Not only are there challenges on the supply side, but demand is also likely to decline.”

Indeed, as consumers worry about their own economic situation and health, demand for products could collapse, Anderson said.

“We hope this is a short-term incident, but it hasn’t been a positive one,” said Bob Filka, CEO of the Home Builders Association of Michigan.

Its industry, which lost 60,000 jobs during the Great Recession, has already been hit: County and city offices have been closed, making it difficult for buyers to register mortgages and inspectors to check new construction.

Other industries may find it easier to weather the downturn.

The recent widespread adoption of the technology by bank customers will make it easier, for example, for banks and credit unions, said Rann Paynter, president and CEO of the Lansing-based Michigan Bankers Association.

And because the coronavirus strikes in the spring, the impact should be mitigated in the near term for retailers, said William Hallan, president and CEO of the Michigan Retailers Association in Lansing.

“Fortunately, it’s not a very busy time for retailers. It’s not Black Friday, ”said Hallan, whose association represents around 5,000 member companies with 15,000 stores and 850,000 employees.

“Retail will be the front line of this crisis,” Hallan said. “We will have stores that will provide space for test drives. They will do curbside pickup and more online orders and deliveries. It is important for retailers to keep their stores open and continue to provide service. “

Filka, Anderson and others predict that the slowdown will only last as long as the most severe restrictions exist. Once raised, they anticipate a sharp increase in spending.

“The only thing I understood is that when this virus story ends, people all over the world will have a big burst party,” said UM economist Don Grimes. “Indeed, you could get a very big increase in personal consumption spending, not only because of pent-up demand, but because of a feeling of relief.”

But, he added: “I still don’t know when we’ll get there.”

Ehrlich said the U.S. economy was in good shape before the pandemic and, like the others, believes it will rebound. “In our basic view, we are preparing for a very strong contraction, especially in the second trimester, but of short duration.”

For many, there will be relief, but Anderson and Brian Calley, president of the Michigan Small Business Association and former lieutenant governor, fear for small businesses that typically don’t have the cushion to absorb long-term losses.

While some businesses will see a temporary boost when they sell or produce needed supplies, most businesses will experience the consequences.

Mandatory closures will have a “ripple effect” on the economy, and “the longer that goes on, I think you’re going to see an exponential impact,” Calley said.

Start-ups are perhaps the most at risk, Calley said, because they can be more in debt and are just starting a business.

Anderson is optimistic about what is on the “other side” of the immediate economic decline. But he’s scared for many small businesses, like barbers and people who have to deal with clients face-to-face.

“For some of these companies, there won’t be ‘the other side’, and that’s what concerns me right now,” he said.