Pandemic: Analyzing the Economic Impacts of the Coronavirus

INTRODUCTION

COVID-19 has the world turned upside down. IMPLAN is no different as we have moved to working remotely instead of heading into the office. As the leader in economic impact modeling data and software, we are being continually asked how to model the economic impacts of COVID-19. Unfortunately, the answer isn’t easy, and with things changing so quickly, it won’t be fully known until the pandemic is under control. No model can predict all of the wide-ranging, short- and long-term impacts of such a far-reaching phenomenon as the COVID-19 pandemic, but here are some ways you can examine what is happening in the U.S. and your community.

LOSSES

PRODUCTION & JOBS

The losses could be so great that Treasury Secretary Steven Mnuchin noted unemployment could reach 20%; impacting 32 million Americans. This scenario could be run by aggregating Industries in a national IMPLAN model and analyzing a 20% reduction across all industries. Some consideration around which Industries will be most heavily affected can also be used to pinpoint employment loss across more specific Industries.

One could also take a more industry- or region-specific approach. Many businesses are forced to make difficult decisions about how to proceed. Service industry firms are being forced to cut back and lay off workers, some even closing due to decreased demand and mandatory closures.  These types of activities are easily analyzed in IMPLAN and data is readily available. For example, you can model the wider economic impacts of the loss of 100 jobs to an event planning company with Industry 500 (Promoters of performing arts and sports and agents for public figures). You could also look at how IMPLAN analyzed losses to the airline industry. The Census has some great detail by 2-digit NAICS from the Small Business Pulse Survey Data.

Something to consider, however, is net analysis. While all of our favorite restaurants are closed, we are still eating, so there will likely be an uptick for grocery store sales. Domestic food manufacturing firms may experience no change. On the other hand, they may see increases as specialty imported foods are not currently available. While food consumption rates may remain the same, the shift from restaurant expenditures to grocery store expenditures will likely not be a one-for-one substitution in terms of economic activity, due to differing wage rates and input patterns in each of these distinct industries. Such positive and negative impacts can be modeled in IMPLAN to get a sense of the overall net impact and the other industries affected indirectly. 

HOUSEHOLDS

Standard household purchasing patterns are obviously being interrupted. Many families rely on employment in the service industry to make ends meet. Although some companies are offering assistance like free internet access and HUD is postponing evictions, wallets will still likely be strained. In IMPLAN, you can examine what a decrease in household spending, most likely for those at the lower ends of the earning spectrum, would look like by analyzing a decrease via a Household Income Event. 

In some cases, the occurrence of economic activity may just be temporarily disrupted. If our travel plans for an Orlando vacation in March were canceled, we may just wait to take our trip until the fall. In that case, the spending from a household perspective would be the same in 2020. If we purchase an abundance of toilet paper now, we won’t need to purchase it later in the summer; just as in the case of our travel expenditures, our total 2020 expenditures on toilet paper would remain the same. COVID-19 isn’t likely to increase a household’s demand for toilet paper over the long term despite short term buying frenzies. So be careful what assumptions you make to ensure that they will be true changes to the economy.

It is also important to note that a decrease in household spending associated with job losses is already covered in the Industry analyses discussed in the previous section and should not be modeled separately.  Also, just like with Industry impacts, net analysis should be performed where possible. For instance, if households receive a payment from the government, as is currently being considered, that may offset some of the losses to household spending, and may also result in an offsetting reduction in government spending on other government programs.  

INTERNATIONAL DEMAND

There are obvious effects happening in domestic markets, but what about all of the shipments that U.S. firms make abroad? Many ports and borders are closed which will obviously hurt some businesses that rely on international purchasing. 

For example, in 2018 the U.S. exported $17 billion in soybeans. For the past 5 years, China has been the largest buyer of U.S. soybeans. The potential economy-wide economic impact of a loss of $3B in soybean exports to China alone is $8 billion. Because exports make up such a large majority of soybean sales, looking at the international purchasing from the Census and running changes is best analyzed with an Industry Contribution Analysis Event.

GAINS

PRODUCTION & JOBS

Not all the news is bad for the national economy, however. Many domestic suppliers are ramping up their production to meet increasing and new demand. Amazon is hiring an additional 100,000 warehouse and delivery workers. In IMPLAN, this is simply a new employment impact. 

What some are calling “panic buying” has forced one toilet paper manufacturer to increase shipments by 20%. While these changes aren’t likely to remain in the long run, they do offer some short run positive benefits. In IMPLAN, increases in toilet paper production can be analyzed by increasing Output in these industries.

SUPPLY CHAIN

Retailers are already feeling the strain of the interruption in the global supply chain. They worry about being able to get products for the upcoming back-to-school and even holiday seasons. This could mean that there are fewer items on store shelves for consumers to purchase and thus shopping will be delayed until later in the year. There might be potential here for import substitution and an increase in purchases of items made in America. These can be modeled by Industry Output Events in IMPLAN.

Manufacturers may not be able to get inputs from foreign ports, which can delay or stop their production. This may encourage them to look for domestic suppliers, which can help them in the short term and help the U.S. economy in the long term if the relationship is successful. Losses to one industry due to decreased production or gains to another industry that might see new demand are modeled through changes to Output in a standard Industry Event.

ENVIRONMENTAL IMPACTS

The environment has become a discussion point online as cities are shutting down for quarantine and unusual natural sights are observed. Scientists are also looking at the potential environmental impacts of COVID-19. Dr. Marshall Burke of Stanford is looking at the reduction in emissions in China and relating that to potential positive health outcomes. IMPLAN has environmental data with Industry-specific coefficients of physical emissions per dollar of Output. Analysts can use these ratios with results from the IMPLAN modeling system in order to gain insight into the environmental impacts associated with COVID-19. By doing this, we can see the environmental effects of what an uptick in manufacturing might look like for the environment.

THE TAKEAWAY

The coronavirus has introduced uncertainty into everyone's lives. As with any economic disruption, the best way to cut through confusion and uncertainty is with data and insight. IMPLAN provides you the ability to model the impact of these circumstances on your own economy. 

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Written March 19, 2020