Besides financial devastation, the coronavirus pandemic is forcing innovation. Online learning on a massive scale. Retail reckoning accelerated. The need for offices suddenly open to discussion. There's no sector the pandemic hasn't touched.
The first week of March, state officials barred spectators from attending the Arnold Sports Festival, decimating what would have been a $53 million economic infusion and providing a glimpse of how drastically the novel coronavirus would impact daily life.
A rolling new reality set in over the days and weeks that followed, as major gatherings were shut down and nonessential employers were ordered by Gov. Mike DeWine to shut down or send employees home to work. A public health crisis became an economic one. Layoffs have occurred at an unprecedented pace. Companies have gone under. Government and nonprofit budgets have been strained.
The historic self-imposed economic shutdown begs the question: When will Central Ohio’s $129 billion economy return to full health?
Like Pearl Harbor
The numbers are astonishing at every level. More than 855,000 workers filed for unemployment in Ohio during the first four weeks after the state began to shut down, compared with only about 715,500 in the previous two years combined, according to the Ohio Department of Job and Family Services.
At least a quarter of the $22 trillion U.S. economy was taken offline due to government shutdown orders, according to a Moody’s Analytics study completed for the Wall Street Journal. The same share of Ohio’s nearly $700 billion economy shut down.
Still, the extent of the damage is unclear. It’s anybody’s guess as to how deep and long-lasting the downturn will be.
What’s clear is that, as ugly as the 2008 downturn was, this new one induced by the coronavirus—likely later to be labeled a recession or depression—is unlike any prior drop. Governments essentially flipped the switch on the economy to prevent the coronavirus from spreading too quickly and overwhelming the health care system. The uniqueness lies in the sheer speed with which it all unfolded, leaving businesses no choice but to lay off workers or close their doors altogether.We're here to help you stay in touch with what's going on out there. Read our latest reporting on the coronavirus response here.
“I don’t think it’s anything like 2008. This is more like Pearl Harbor and the World War,” says Alex Fischer, CEO of the Columbus Partnership, an organization of CEOs from leading businesses and institutions in Central Ohio. “I’m not trying to be dramatic. I just think this is bigger than that deep economic recession we were in. That was still more narrowly focused. This has rocked the fabric of every business—not that a recession doesn’t. Almost nothing like a bomb going off has this immediate impact, just these immediate closings and the economic damages that result from that. I do think the depth of this and the breadth of it is historic.”
Hopes for a rapid, V-shaped recovery were dashed as initial 15-day shutdown orders dragged on through April.
“It will be more of a Nike Swoosh. I’m not seeing a hard ‘V’ right now and I’m not even seeing a ‘U,’ which are often more customary in recessionary times,” says City of Columbus Auditor Megan Kilgore. “We are going to see a sizable, to-be-determined drop and then we will see a steady upswing, I believe, as businesses are allowed to reopen, and an increasing upswing as restaurants reopen, small businesses get back online, hotels reopen, salons reopen, and so forth.”
What’s in a comeback?
The key variable in the economic recovery is the virus. Health officials and economists agree business as usual is off until there is a vaccine or treatment for COVID-19, the disease caused by the new coronavirus.
With efforts underway to get the economy going again, recovery won’t be like flipping a light switch, and there’s plenty of disagreement from people who worry the virus could resurge if we move too fast to get back to the old normal. Reports out of Wuhan, China, where the virus is thought to have originated, suggest industrial production is far from back to normal and that consumers are skittish.
It was promising that federal policymakers were able to act relatively quickly in implementing trillion-dollar stimulus programs. “This is very unusual, I don’t think there’s ever been a period in American history where we’ve had active monetary and fiscal policy where the stimulus has come so close to the shock itself,” says Nationwide Chief Economist David Berson. “So that’s very positive.”
To be sure, consumers, which account for some 70 percent of the American economy, won’t be sustained by $1,200 one-time stimulus checks if the crisis drags on.
“That maybe covers your rent but not much more,” says Bill LaFayette, economist and owner of Regionomics LLC. “People have fallen into a hole and payments are being deferred, they’re not being forgiven. And in the meantime, people aren’t going to have a whole lot of money to spend.”
There should be pent-up demand for vehicle sales and other purchases that were put off. The extent, however, depends on containment efforts and the willingness of consumers to venture out and spend money. It’s clear some aspects of the economy will take a year or more to get back to full speed. Brian Ross, CEO of Experience Columbus, recently told the tourism group’s board he doesn’t expect large meetings to happen regularly until the second quarter of next year.
The spike in unemployment will impact the budgets of governments that rely on income taxes such as the city of Columbus. Nonprofits are likely to suffer from a strain on resources as they did during the Great Recession. Small businesses don’t enjoy the financial reserves of their larger peers. And a deep recession could exacerbate economic inequality, as the Great Recession did, according to a study by the Pew Research Foundation.
To weather the storm, local business executives, economic development leaders and government officials are counting on the traits that were supposed to drive continued economic growth heading into 2020: a diverse economy, the “Columbus Way” of public and private sector collaboration, an educated talent pool, affordability and the presence of stable institutions such as the state government and Ohio State University. “I add all of that up and I’ve got to believe that we’ve got more of the ingredients to thrive into the future,” Fischer says.
Some industries are better positioned. Central Ohio can flex its logistics muscles during a time when consumers are stuck at home and relying on e-commerce more than ever.
“Our industrial expertise is a huge advantage for us. As manufacturing and logistics respond to this push for e-commerce, we should be really well positioned,” says Michael Copella, managing director for the Columbus operations of CBRE.
Retail disruption for years has stalked major Columbus employers including L Brands and Abercrombie & Fitch. There’s suddenly a forcing mechanism to rethink everything, potentially shaping retail stores and foot traffic for years to come.Stay up to date with the region’s business scene. Subscribe to Columbus CEO’s weekly newsletter.
“This is going to define a generation of retail,” says Kenny McDonald, president and chief economic officer of One Columbus, the economic development organization for the 11-county Columbus region. “For a town as invested in retail and retail technologies and leadership as we are, that’s going to be really important. Are we going to lead through that? Are we going to be an example of that?”
Businesses across all industries have been forced to adapt. Drive Capital, a Columbus-based venture capital firm, imparted wisdom on portfolio company executives in March as governments first ordered shutdowns.
“The first was, in a stress test, assume that a third of your business goes away and you don’t sign a whole bunch of new business. And if you don’t have 18 months of cash, you’ve got to do some expense adjustments,” says Mark Kvamme, co-founder and partner of Drive, which recently raised $650 million in two funds to continue investing in Midwest technology companies. “The second thing is, for every week we’re involved in this, it will take four times that amount of time before we get to normal.”
Scars from the last crisis—for those who went through it—are helping this time around, says Don DePerro, president and CEO of the Columbus Chamber of Commerce. “I think business owners learned a lot during the Great Recession. And as a result, that has really helped them prepare for what we’re going through right now,” DePerro says. “Maybe not so much work remotely, but working with a smaller staff. We’re more accustomed to working very lean.”
When innovation flourishes
Some good may come out of the coronavirus crisis. It’s said that necessity is the mother of invention and, in many ways, the shelter-at-home order has forced companies, nonprofits and governments to rethink operations.
Everyone from toddlers to nursing home residents is suddenly well versed in video conferencing, even with their doctors in some cases. Companies are pivoting like they haven’t since World War II. There’s Aunt Flow, the maker of tampons and pads, which started producing face masks. Research giant Battelle landed a $400 million federal contract to sanitize and reuse protective masks using a new technology. And distilleries are producing hand sanitizer.
“During these times is always when innovation really flourishes,” says Jordan Davis, director of Smart Columbus, Central Ohio’s $550 million smart cities initiative.
There’s an opportunity to address some of the region’s needs in creative ways. In Columbus CEO’s annual survey of economic conditions completed last fall, business executives said improving education was the most important factor to improving the business climate. Less than six months later, students wrapped up their school years in online classes. The not-so-subtle nudge from the coronavirus could precipitate permanent change.
As organizations conduct business via videoconference, executives are wondering about the level of need for real estate going forward. Copella sees employers taking a flexible approach that upends traditional settings.
“If people do work from home more, you could see larger companies say, hey, instead of having an office we’ll buy every one of our employees a membership to a coworking location,” Copella says. “I could see that being [something] employers offer as a perk to attract talent.”
The adage “never waste a good crisis” is as relevant as ever.
“I want people to say, how did you guys do this?” says McDonald, who has led One Columbus since it was formed in 2010 in response to the Great Recession. “From March 2020 to whatever point in the future we’re having that conversation, I want that to be a success story for the Columbus region, and a national model and maybe even an international model.”
Evan Weese is a freelance writer.