Much of the economic data collected in the second half of March do not yet reflect the extent of the effects of the COVID-19 fallout, and yet the economic situation in West Michigan has seldom looked so grim.
That’s according to economist Brian Long, director of supply chain management research at Grand Valley State University’s Seidman College of Business.
“We’ve had some down quarters, but we have never shut this much of the economy down all at once,” Long told MiBiz. “The numbers that we’re going to look at for the first quarter are going to be just absolutely horrendous.”
In March, new orders at West Michigan companies slipped on an economic scale to negative 21 from a comparative seven in February, according to a monthly survey released by Long. The production index dropped to negative 16 from two the month before. These data mark a major contraction, which is represented by any negative reading.
The March index for purchases, which measures activity in the purchasing offices, plunged to negative 30 from nine. With many purchasing offices closed altogether, West Michigan businesses can expect another record low for April, Long said.
In addition, more people in the state applied for unemployment in the last two weeks than in all of 2019, according to an announcement from Gov. Gretchen Whitmer today. Total jobless claims have reached 800,000 in Michigan, she said.
“We’re going to find out about how much we can stretch these safety nets,” Long said.
Unfortunately, most of the economic data that help analysts predict the future business environment was collected before the full depth of the crisis caused by the global pandemic had come to light, said Long, who has been compiling the monthly report for decades.
“My previous record low was obviously back during the Great Recession,” Long said. “When the numbers come in for this month, we’re going to blow right through that to be the absolute worst report in the 40-year history of this survey.”
The second quarter of 2020 is expected to be the worst quarter “since we started keeping statistics” on indicators like unemployment and GDP in the 1930s, he added.
Businesses and the economy still have a chance to quickly rebound — even if only partially — once people can get back to work en masse. Yet, as in any recession, economists like Long warn of “structural damage,” or the companies that never come back after the recession is over.
“In the case of the Great Depression, we lost a tremendous number of companies,” Long said. “This happens in every recession, too. The weaker businesses, whatever they happen to be, don’t come back.”
Long is most concerned about the service sector and restaurants in particular, which may have already overgrown their market share, he added.
“We had altogether too much of our economy that was shifting in the direction of people going out to eat,” Long said. “The weaker ones are doomed as far as this economy is concerned, because that restaurant business is going to come back very slowly.”