If you're waiting for the economy to recover from the COVID-19 pandemic, you might settle in for a lengthy stay.
Three economists who follow the local, Colorado and U.S. economies say a full recovery won't happen until at least next year and perhaps as long as two or three years from now. A swift turnaround is not in the cards, say Tatiana Bailey, director of the University of Colorado at Colorado Springs Economic Forum; Tom Binnings, senior partner of local economic research firm Summit Economics; and Broomfield economist Gary Horvath.
All three economists expect the number of Colorado residents on payrolls this year to decline by a record amount, with consumer spending plunging and the tourism industry left in tatters after statewide restrictions closed many businesses early in the pandemic, later allowing them to reopen at a fraction of their capacity. They also worry the pandemic could worsen and trigger renewed restrictions, which has already happened to some extent in Colorado and other states.
The economy at all levels was booming with record low unemployment rates and strong job growth before the COVID-19 virus took hold in the U.S. The resulting stay-at-home orders in Colorado and elsewhere put more than 20 million people nationwide, more than 300,000 in Colorado and 30,000 in the Colorado Springs area out of work, at least temporarily.
There are signs of improvement. About 20% of the payroll workers in the Colorado Springs area and statewide, and 12% nationwide, had returned to their jobs by May as businesses partially reopened The nationwide percentage increased to 30% in June; state and local payroll numbers will be released Friday. First-time claims for unemployment insurance benefits have slowed to the lowest levels since the pandemic hit, but still remain several times higher than weekly totals before restrictions were imposed.
"I don't expect to see a rebound until 2021, and everything depends on the path of the disease. We will need four or five vaccines and treatments for the economy to really bounce back," Bailey said. "It will take two or three years for the (U.S.) economy to completely recover, but I really feel Colorado will do better than that because of the high concentration of professional and technical workers here. Those jobs are higher paying and can be done from home."
Bailey had hoped as recently as a few weeks ago that the nation's economy would bounce back in the second half of the year, but a resurgence of cases in many states, including Arizona, California, Florida and Texas, has dampened that optimism. Colorado, Arizona and Florida already have ordered bars and nightclubs to close again and some states are reimposing restrictions on restaurants and other businesses to slow the latest wave of cases.
"A more pessimistic scenario for recovery is becoming more likely. We are already seeing consumers pull back (on spending) though not nearly back to the levels we saw in April," Bailey said. "Still, even if we get back to 75% of the activity we saw before the pandemic, that still means the economy is down 25%. As happy as I am to think about the economy reopening, the number of active (COVID-19) cases is still too high."
Bailey had been warnings since early 2019 that the U.S., state and local economies were vulnerable to a shock that would trigger a recession, and the pandemic delivered that shock — the "hardest hit we have taken in 100 years," she says. Bailey said both consumers and businesses, particularly small and midsized firms, had taken on too much debt and saved too little, leaving them ill prepared for the downturn.
Most economic forecasts expect U.S. economic activity to decline by 6% for the year; numbers for the first quarter show a 5% drop with a much larger drop anticipated in the second quarter when much of the nation was under stay-at-home orders. Bailey said consumers quadrupled their savings rate during the first quarter, and another round of stimulus checks could help limit further damage to the economy. But that, she adds, wouldn't undo the impact of another round of lockdowns should the pandemic continue to worsen.
Uncertainty about what extent the pandemic's resurgence will prompt states to reimpose restrictions has prompted Binnings and many other economist to avoid making specific forecasts. Although Binnings was initially optimistic that the economy would recover fast, now he isn't expecting much more improvement for the rest of the year or a full recovery anytime soon.
"This is worse than I thought it would be. I thought, based on China's experience things would settle down, but that was a bad assumption," Binnings said. "History shows us that pandemics come in waves. I would expect this to continue at least until year's end or into next year until a vaccine or some form of herd immunity arrives. It will take at least three to five years to recover from this in terms of jobs and consumer confidence."
Binnings anticipates that by year's end, Colorado will recover about a third of the more than 300,000 jobs lost as a result of restrictions imposed in March and relaxed in May to slow the pandemic's spread. That would still leave more than 200,000 people across the state still without jobs, especially in the tourism and related industries that depend on large crowds and gatherings that remain subject to restrictions.
"We are now seeing a second and third wave of layoffs in companies that are tied to consumer products and manufacturing. Much of that stems from a lack of business confidence to invest or hire people," Binnings said. "Even if the virus went away tomorrow, you would still see longer-term effects for another 60 to 90 days. That is a best-case scenario and not going to happen. Even then, getting back to normal won't happen by the end of the year."
While Binnings expects retail sales to drop 10% 15% this year amid waning consume confidence, the housing industry has been a pleasant surprise so far by bouncing back quickly from the pandemic amid historically low mortgage rates. However, he expects housing construction to slow 10% to 20% during the rest of the year once the surge of homebuyers triggered by low mortgage rates subsides.
"This is as bad a forecast as I have ever offered, but there is some good news. With international travel eliminated, sporting events and movies not allowed and decent unemployment benefits available, I expect there is pent-up demand building that will mean better prospects for 2021," Binnings said. "Colorado Springs is well-positioned for the longer term in many areas. Virtual working will change economic development and you will need to attract the employees more than the employers based on where they want to live and the quality of life."
Horvath has divided his forecast for the rest of the year into three scenarios — optimistic, bumpy and pessimistic — but even the most optimistic predicts the state's economy will shed at least 80,000 jobs this year. The bumpy scenario anticipates the state's employment will decline between 105,000 and 130,000 and the pessimistic one forecasts job losses of more than 130,000 this year if a worsening pandemic triggers another statewide shutdown.
Much of the job losses will be concentrated in tourism and retailing; passenger traffic at Denver International Airport still remains at less than 20% of typical levels for this time of year. The state and local government, energy and wholesale sectors also will lose jobs, but not as many as tourism and retailing, Horvath says. Business and professional services. finance, manufacturing, construction and health care sectors are expected to add jobs this year.
"The retail and tourism industries will take a while to recover, likely until a vaccine is available or people decide they want to go out. The industry has been forced (by the pandemic) to operate with a business model that isn't profitable for them," Horvath said. "The tourism industry is ramping up now, but there is only six weeks left in the peak summer season. Perhaps people will be more comfortable traveling by Thanksgiving or Christmas. The ski season will be a good indicator for that."
Horvath isn't expecting Colorado's economy to return to the levels it reached last year until 2021. "At some point, the economy has to move ahead. We can't keep stimulating the economy," he said.