Published in Economic Development

GVSU economist predicts shallow recession in West Michigan; hospitality industry hardest hit

BY Monday, March 16, 2020 04:17pm

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The mandated closing today of restaurants, bars and other businesses will contribute to a shallow economic downturn for the West Michigan economy. 

Paul Isely COURTESY PHOTO

That’s according to Grand Valley State University economist Paul Isely, who notes that some small businesses in hard-hit sectors may not survive.

Gov. Gretchen Whitmer’s executive order banning dine-in services effective 3 p.m. today through March 30, combined with supply chain problems for businesses, will take about two percentage points of off local economic growth, said Isely, associate dean and professor of economics at GVSU’s Seidman College of Business. 

That translates to a $1.2 billion to $2 billion bite out of the region’s economy.

“That sounds like a lot, but the West Michigan economy is over $60 billion, so it’s going to cause problems, but not problems on a massive scale,” Isely said in a news release from GVSU.

The hardest sectors — entertainment, food services, recreation, transportation and accommodation — collectively account for about 5 percent of West Michigan’s economic output.

Those sectors “are going to be deeply affected,” Isely told MiBiz this afternoon in an interview.

“We’re going to have companies not exit this. We know that at this point,” he said. “Given how quickly this happened and the length of time that we know other places in the world have had to deal with this before they turned the corner, we know that businesses that weren’t well established and didn’t have a good cash position are going to have a hard time if they’re in those sectors.”

Business owners in the craft brewery industry said the closure could result in a “bloodbath” of companies unable to make it through the two-week period with severely reduced revenues, as MiBiz previously reported

Based on economic modeling and data on the impact the pandemic has had in other countries, Isely overall expects a light and short downturn in West Michigan from the coronavirus pandemic and resulting disruptions to business.

“Most economists are looking for a pretty quick tail on this,” he said. “It’s going to hit some industries very deeply for a short period of time, but we’re looking at a pretty fast rebound. Economists are projecting a pretty good second half of the year as we come out of this phase.”

Nationally, Comerica Inc. Chief Economist Robert Dye, in a daily economic alert on the emergency cut in interest rates over the weekend by the Federal Reserve, wrote today that he expects a significant hit to the U.S. economy in the second quarter.

Dye noted that Sunday’s Federal Reserve announcement on the emergency interest rate cut did not offer an updated economic projection on the effects of the pandemic.

“Given the rapid pace of developments, it is simply impossible for us to provide a second quarter GDP projection with accuracy. What we can say is that it is near certain that second quarter GDP will show a significant contraction,” Dye wrote. “On an annualized growth rate basis, the pace of contraction of second quarter real GDP could exceed 10 percent. A key factor will be the rate of spread of the virus over the next 6-8 weeks and the extent of social mitigation efforts designed to thwart the spread.”

The Dow Jones Industrial Average plunged again today, closing trading down nearly 3,000 points, or 13 percent. 

In today’s announcement from GVSU, Isely acknowledged the volatility on Wall Street from the crisis, although noted “the economy is not the stock market.”

“Understand the stock market is going to be very, very volatile in the near term as traders try to figure out how long this is going to last,” Isely said. “But, we’ve already seen the Federal Reserve step in very strongly and very decisively. Now we’re just waiting to see what sort of stimulus the U.S. government will kick in to try and support those industries that are most adversely affected.” 

For workers affected by the closings required under Gov. Whitmer’s executive order, the state plans to temporarily expand eligibility for unemployment benefits.

The expansion, made under a subsequent executive order from the governor, covers:

  • Workers who have an unanticipated family care responsibility, including those who have childcare responsibilities due to school closures, or those who are forced to care for loved ones who become ill.
  • Workers who are sick, quarantined, or immunocompromised and who do not have access to paid family and medical leave or are laid off.
  • First responders in the public health community who become ill or are quarantined due to exposure to COVID-19.

“While we work together to mitigate the spread of coronavirus, we must do everything we can to help working families,” Whitmer said in a statement. “This executive order will provide immediate relief to those who can’t go to work, and who rely on their paycheck to put food on the table for themselves and their families. I urge everyone to make smart choices at this time, and to do everything in their power to keep themselves and their loved ones safe.”

Read 4830 times Last modified on Friday, 20 March 2020 17:34
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