Amid COVID hardships, expert cautiously optimistic for speedy recovery

By Eric Gorton, contributor

One year into the COVID-19 pandemic, unemployment remains high and many industries, individuals and families continue to struggle.

However, with vaccines rolling out and consumers chomping at the bit for more normal conditions, there is hope for an economic recovery by the end of 2021, attendees of an annual Economic Outlook Meeting hosted by the Harrisonburg-Rockingham Chamber of Commerce were told Friday.

A little patience will be required.

Tom Barkin. Photo from Federal Reserve Bank of Richmond.

Due to elevated cases of COVID-19 and severe weather across the country, the first third of 2021 is starting off bumpy, said Tom Barkin, president and CEO of the Federal Reserve Bank of Richmond.

Speaking to about 100 people who tuned into the meeting, conducted via Zoom, Barkin said, “The second third of the year should brighten and I think that is particularly true on the consumer side.”

Noting that many have saved more during the pandemic by cutting spending, he said, “There still may be some caution among consumers, but I expect that those who are vaccinated to have a lot of pent-up demand for meals and entertainment and travel.”

Joined on the panel by Brian Shull, economic development director for Harrisonburg, and Casey Armstrong, assistant county administrator for Rockingham County, Barkin started the meeting with an overview of the economic shutdown in March and April and the federal stimulus that followed, in the range of $3 to 4 trillion.

“Last year was just unprecedented,” he said. “When you shut the economy down it hits sectors like hospitality and entertainment. It also hits sectors like oil and gas. The labor market got hit hard.”

The recession hit workers in the lowest-paying jobs – disproportionately held by young workers, women and people of color – the hardest, Barkin said.

“Even if you look at it today, higher-income jobs are actually back a little bit ahead of where they were before the pandemic, but the lowest wage jobs are still down 14% from where we started,” Barkin said.

Chart from U.S. Bureau of Labor Statistics

While unemployment remains high, there are also plenty of job openings – one of several anomalies Barkin highlighted.

“A strange part of the economy now, despite having elevated unemployment, I’m still hearing from employers, especially in manufacturing, technology, health care, that they can’t find workers,” he said.

While many people who are unemployed are not looking for work due to health concerns or having to care for loved ones, Barkin also pointed to a labor market mismatch.

“The lower income service workers who have been laid off don’t necessarily have the skills or the interest in the jobs that are available,” he said.

Others, he said, are just waiting to return to their former job.

“If a vaccine is right around the corner and you think your job is going to come back in a month or two, maybe you don’t need to retrain or redeploy,” he said.

Local employment still down from pre-pandemic peak

Even in the Shenandoah Valley, job openings are plentiful, but thousands of workers who lost jobs due to the COVID-19 pandemic remain unemployed.

Harrisonburg’s Shull said a record 67,500 people were employed in the city and county in February 2020. By May, that number dropped by 9,000 to 58,500.

The area recovered about 4,000 jobs by October, putting the deficit at 5,000. “A lot of people just aren’t ready to return to work,” Shull said. “Health concerns, childcare issues, not all those 5,000 are out there actively looking for a job right now.”

While some industries have struggled during the pandemic — services spending remains down 7.5% from a year ago, Barkin said — others have flourished. Real durable goods spending, for example, is up a little more than 7% from last year.

“We couldn’t take a trip, we couldn’t go out to eat . . . and we rotated our spending toward goods, particularly goods related to either time at home or outdoor recreation,” Barkin said. “Things like furniture or golf clubs or home and garden or boats or ATVs.”

Construction is another industry that is booming. Single-family housing starts are the highest they’ve been since the great recession of 2008-09, Barkin said.

In Rockingham County, “It’s hard for us to keep up at this point with some of the new housing that is going into place,” Armstrong said.

Local tax revenues take significant hit

Shull and Armstrong both spoke of the difficulties in other sectors locally, especially restaurants and lodging.

Meals tax revenue in Harrisonburg dropped $3.2 million in 2021 and lodging tax dropped about $1.3 million, Shull said. Sales tax did not take as big a hit as people continued to buy durable goods, but still dropped about $500,000.

“If you add those three together, we’ve lost about $5 million. That means a lot of capital projects have to be delayed until we can get back on our feet with some of those going,” Shull said.

Armstrong said meals tax revenue in the county dropped about 30%.

Going into the latter part of 2021, Barkin said the economy could be set up for a rapid improvement, in large part due to the stimulus measures that saw the savings rate increase from 7-8% pre-COVID to 26% in the second quarter of 2020.

“That’s World War II kind of levels,” Barkin said.

“This may be risky to say, but I actually think a lot of things have gotten a lot more certain in the last few months. … We now have a set of vaccines. They seem to be effective and states are now distributing them and that gives us some daylight on the horizon,” he said.

Helping to fuel his optimism is the possibility of additional stimulus money. Right after people started receiving checks from the government, debit card spending in particular started to escalate. The uncertainty now is in the pace and the effectiveness of the vaccine rollout and what the response is going to be on the part of businesses, public health officials and consumers.

“I hope that with a successful vaccine rollout, extraordinary monetary and fiscal support and the fuel provided by excess savings, that the economy can make its way back to health in relatively short order,” Barkin said.

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