The COVID-19 outbreak is an unprecedented event in the Ninth District and in our nation. Economic shocks—both sudden and long-acting—are not new; in fact, we’ve had both in the past two decades, in the form of 9/11 and natural disasters (sudden shocks) and the Great Recession (long-acting).
But the breadth and depth of the COVID-19 outbreak has unfurled as a combination of the two, unleashing with surprising swiftness and to depths that typically take much longer to develop.
In an attempt to start gauging the impact of COVID-19, the Minneapolis Fed surveyed businesses across the Ninth District (Minnesota, North and South Dakota, Montana, Michigan’s Upper Peninsula, and northwestern Wisconsin) from Wednesday, March 18, to Friday, March 20. It sent surveys (via email) to businesses through a partnership with state-level chambers of commerce in each of the Ninth District states and one nonprofit economic development organization in Michigan’s Upper Peninsula.
In all, the Minneapolis Fed received close to 1,200 responses, representing a wide cross section of businesses. Respondents offered a quick and sobering look at the immediate impact of COVID-19 on the business community, as well as some initial insights on their outlook, which has, not surprisingly, shifted significantly since earlier this year, before coronavirus became a household word.
While quantitative results show quick and painful economic effects, respondents also shared their concern in an unprecedented volume of comments—more than 2,500 in all. Strung together, the comments are novel-length: 60,000 words strong, long enough to fill a manuscript running 240 pages.
Given the sheer scope of feedback, this article focuses mostly on quantitative results to establish the overall impacts that businesses reported from COVID-19 across the Ninth District. A small number of respondent comments will help tell that story. But the Minneapolis Fed is also working on ways to spotlight and amplify the unique challenges that many district businesses voiced through this survey.
Impact = immediate
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Respondents made clear that the detrimental effects of COVID-19 have been swift. Already by last week, almost three-quarters of respondents had seen some negative impact on year-to-date sales or revenue (Chart 1). Businesses also expect the effects to worsen over the next month.
A U.P. retailer said the company “had a good start to the quarter and first half of March.” But sales dropped off, and the company projects “an 80 percent decrease for the remainder of the month and similar drops in the next few months.”
A North Dakota floral and gift shop said business just from March 1 to March 19 was down by over $9,000. Along with regular foot traffic declining, group events that the firm typically services— funerals, proms, weddings—are being canceled or postponed. “I expect to lose three of the top sales months of the year.”
The company also had to purchase summer supplies six months ago, “and now there will be no income to pay for wages, fixed expenses, or inventory.”
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That revenue downturn has rolled forcefully into workers. At the end of last week, one-third of businesses reported staffing cuts (Chart 2).
That falls in line with the torrent of unemployment insurance applications being seen in Ninth District states and across the country. From Monday, March 15, through Saturday, March 21, Wisconsin accepted almost 70,000 applications for unemployment benefits, compared with 5,200 during the same period last year. Through Thursday of last week, Minnesota had accepted 95,000 applications, many of them due to the unprecedented closures of restaurants, bars, and other businesses that cater to social gatherings.
But the effects are also much broader. Oil prices have cratered, which spilled quickly over to a North Dakota manufacturer of supplies for the industry. “Up until this week, we had multiple positions open in the company. It came to a screeching halt this week with preparing some employees to collect unemployment. Phones noticeably quit ringing,” and order traffic nearly stopped. The company’s sales outlook was poor because the oil industry “historically takes much longer to recover than it does for the bottom to drop out.”
Early in the life of this outbreak, much of the business concern was over supply chains and having to source products from countries like China, where the outbreak was more pronounced. That concern is still present among respondents and is expected to worsen going forward, but it takes a back seat to concerns over customer demand, which have shifted significantly toward pessimism.
A Montana flooring company said it had not yet seen any major pullbacks in construction projects. “But I fear it’s coming.” Even if it does not, the respondent said, large suppliers might shut down, “which means we can’t keep installing jobs, which means we can’t bring in revenue on completed work.”
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Add it all up, and it’s not a surprise that businesses’ outlook for 2020 has dropped (Chart 3). Earlier this year—pre-coronavirus—close to two-thirds of respondents had an optimistic outlook for 2020, and more than half of that group was very optimistic. Fast-forward but a couple of months, and it’s less than 10 percent.
Slicing responses among different subgroups—by geography, firm size, and other criteria—showed mostly similar overall results.
There were, however, some modest differences. For example, results by firm size showed that small firms have seen larger negative effects to date. But the “effects gap,” as it were, narrows with larger firms when asked about expected effects over the coming month.
A cloudy outlook
How COVID-19 affects the Ninth District economy going forward will be a matter closely tracked (and written about) by the Minneapolis Fed. We’ll also be particularly interested in learning how various state and federal relief measures are working once in place. What’s clear at the moment is that COVID-19 has had a large and negative effect to date, with the expectation that short-term conditions will worsen, but with much uncertainty about what lies ahead.
A South Dakota manufacturer employing more than 250 people said the outlook “is really cloudy out even to next week. But if we don’t get people comfortable and able to work and commute again soon, confidence and spending are sure to decline. This is going to leave a mark.”
A U.P. manufacturer said the firm had not yet seen any negative effects from COVID-19; however, the company has two large projects that account for about half of its fiscal 2020 income. But to earn that revenue, it has to travel to install the equipment, and it doesn’t expect to be allowed to for the foreseeable future. Without installation, the company won’t get paid, and “that will be very detrimental to our operating capability.” The company also anticipates some loss of sales for the remainder of the year due to market concerns. “We are still very much in wait-and-see mode.”