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The 2020 ‘heart attack’ Michigan’s economy suffered won’t heal overnight, economists say

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Things were looking up when Michigan’s steadily-growing economy entered 2020.

Michigan’s trends largely mirrored the nation’s – as the U.S. economy had been steadily growing for 128 months dating back to 2009. It was the longest recovery on record, dating back to the 1960s.

Employment growth wasn’t as strong as the 1960s or 1980s, but it lasted longer. The growth streak promptly ended in early 2020 when COVID-19 hit.

“February to April, we went off a cliff,” said Michael Horrigan, president of the W.E. Upjohn Institute for Employment Research in Kalamazoo. “No matter what kind of modeling you had, this kind of seismic change is just something that would never have been anticipated.”

There had been whispers about the possibility of a recession. But even the early news of a foreign virus didn’t deter forecasts – as health dilemmas rarely have major economic consequences.

It was supposed to be a prosperous 2020.

“It’s a little depressing to think about that,” said Michael McWilliams, economics researcher at the University of Michigan. “We were projecting more of the same – continued growth … (and) record expansion in Michigan.”

The pandemic isn’t over, but the post-mortem on 2020′s economic damage is already underway.

How hard did COVID-19 hit Michigan’s economy? Which groups were affected most? Here are eight economic takeaways from the difficult year:

Business closures, cutbacks, furloughs and temporary federal unemployment benefits spurred a dizzying number of new claims in Michigan last spring.

In early March, about 75,000 Michiganders were getting unemployment pay in a given week. By mid-May, it topped 3.1 million claims in a single week.

Compare that to the Great Recession, when Michigan’s weekly unemployment claims peaked at 363,212 claims in January 2009.

In 2020, Michigan stayed above 1 million claims per week until October and only dipped under 700,000 weekly claims in the final two weeks of 2020. One potential caveat – state officials admit there was an unknown amount of fraudulent claims this spring.

“There was this immediate recovery back (this spring) as we figured out how to get the economy to continue, even though we still had to have restrictions,” Horrigan said. “But then the pace of that recovery has really slowed.”

Two of Michigan’s largest chunks of the economy – construction and manufacturing – were shut down by Whitmer’s executive orders. Both reopened with restrictions in May.

About 93% of Michigan construction jobs lost between February to April were recovered by November, per data from the Upjohn Institute. Likewise, more than 80% of auto manufacturing jobs returned by November – a much higher rate than non-auto-related manufacturing jobs.

Because of the nature of COVID-19, industries that didn’t require face-to-face contact with the public were quickest to restore jobs, Horrigan said.

Two large sectors of the economy gained more jobs than they lost during the pandemic – transportation jobs and warehouse/storage jobs.

It’s no secret the leisure and hospitality industry was among the hardest hit sectors of the economy – both in Michigan and nationwide.

Only about 94,000 jobs came back by November out of the 214,000 accommodation and food service jobs lost at the peak of the pandemic – roughly 44%, per Upjohn Institute data. Nationwide, the industry recovered 60% of its jobs in the same timeframe.

And that doesn’t factor in many of the job losses from the latest partial shutdown, as indoor dining has been banned in Michigan since Nov. 18.

While restaurants can still use outdoor dining spaces and offer takeout, most have shrunk their staff or closed completely because of the lack of demand.

The broader leisure and hospitality industry lost nearly 200,000 jobs in Michigan between December 2019 and December 2020, per state data, leaving Michigan with about 218,000 jobs in that sector.

While past recessions battered middle- and high-wage industries like manufacturing or banking, the 2020 pandemic recession hit differently.

About 64% of jobs lost from February to April were low-wage jobs, 34% were middle-wage jobs and 2% were high-wage jobs, per the Upjohn Institute.

“A lot of those face-to-face jobs are in lower-wage industries,” Horrigan said. “It’s just the nature of the pandemic. A lot of the higher-wage jobs are ones that are related to industries where … you can just tell all of your employees to work from home.”

Low-wage industries lost about 30% of their jobs in the second quarter of 2020, compared to 15% lost by middle-wage industries and 11% lost by high-wage industries, per data from University of Michigan economists.

Data from the University of Michigan shows low-wage jobs took the biggest hit from the pandemic and are projected to be the slowest to fully recover.

By 2022, economists project high-wage jobs will be fully recovered while low-wage jobs – like at restaurants and hotels – will be only about 90% recovered.

“The relatively meek growth in those lower-wage industries over the next few years will, in the end, leave a disproportionally larger number of lower educational attainment and lower-skilled workers facing long-term job loss,” McWilliams said.

State leaders are also expecting this “two-track recovery,” where some industries take much longer to get jobs back than others, said Michigan State Treasurer Rachel Eubanks.

As with most recessions, the recovery takes much longer than the plunge.

“We’ve had a major heart attack,” Horrigan said. “It’s going to be slow to get some of these jobs back.”

Economists break down the pandemic pain by job type – but they also look at jobs numbers by demographics.

Women took the brunt of the damage in 2020 – especially those without a bachelor’s degree.

Women without a degree make up 34% of the U.S. population, but accounted for 39.5% of all job losses between February and April, per the Upjohn Institute.

A disproportionate number of women left the labor field entirely, meaning they were jobless and weren’t seeking a job. Nearly 21% of Americans who left the labor field between February and April were minority women without a degree – even though that group only makes up 14% of the total population.

People started entering the labor force again in April, but non-college minority women only made up 8.6% of the gains.

“To me, this is kind of a child care issue,” Horrigan said. “Everyone’s suffering, but this group is suffering probably a lot more than everybody else.”

With schools and day cares closed, many women left the labor field to be home with their children, Horrigan said.

Non-minority men with college degrees fared the best of all demographics, during the pandemic. This group accounts for 11.1% of the U.S. population, but only accounted for 6.5% of the job losses.

“Some people call it the she-recession,” Horrigan said. “I kind of call it the “less-than-a-bachelor’s-recession-for-everybody-but-white-males.”

As the pandemic has spread throughout all parts of Michigan, its impact has started balancing out across demographics.

That wasn’t the case at the start of the pandemic – as Blacks, Latinos and other minorities were hit hardest. While Latinos only make up about 10% of Kent County’s population, they accounted for about 40% of the COVID-19 cases early on, said Guillermo Cisneros, executive director of the West Michigan Hispanic Chamber of Commerce.

“Definitely the pandemic has really affected the Latinx business community,” Cisneros said. “The deep disparities were showing because we were the front-liners.”

Across the U.S., minorities without a college degree make up nearly 28% of the population. They accounted for nearly 35% of the job losses from February through April, per the Upjohn Institute.

Part of the problem is, the types of businesses Latinos own were the types hit hardest by the pandemic, Cisneros said. In Kent County, the most common Latino-owned businesses include restaurants, grocery stores, beauty salons, massage centers, insurance and nail salons, he said.

The federal and state government are trying to keep businesses afloat with an assortment of grants and loans. But those programs can be tough for minorities to access, Cisneros said.

About 80% of Latino business owners in west Michigan either don’t speak English or feel more comfortable speaking Spanish, Cisneros said.

“When you’re trying to explain cash flow, financial statements – if you’re explaining it in English, many of them don’t understand. So it’s impossible for them to implement any of this knowledge,” Cisneros said. “That’s why (the WMHCC) exists – to be able to bring these resources in Spanish, so they can be successful.”

Consumer spending in Michigan took a predictable downturn after Michigan’s first shutdown and stay-home order in March.

At it’s worst, spending in Michigan was down 37% compared to January 2020, per TrackTheRecovery.org.

But while jobs have only partially returned, consumer spending rebounded to January 2020 levels by June as restrictions were loosened. McWilliams, the UM economist, also credits the $1,200 stimulus checks and extra unemployment benefits for higher-than-expected spending numbers.

Spending took a small dip again in late November during Michigan’s second partial shutdown – dropping 13.7% but quickly rebounding to normal levels.

But it’s clear spending patterns shifted, as many turned to online sales. Small business revenue in Michigan dropped 56% in March and never recovered to pre-pandemic levels, per TrackTheRecovery.org.

Small business revenue in Michigan only recovered to being down 11% compared to January levels. It has since dipped to 34% below January levels.

Consumer spending, 2020

A look at consumer spending in Michigan in 2020.

Michigan small business revenue, 2020

A look at small business revenue in Michigan from 2020.

Economists will keep a close watch on jobs numbers in 2021. But they’re also watching COVID-19 case trends, vaccine deployment and how much stimulus money is injected into the economy.

“I definitely wouldn’t rule out the possibility that the economy comes roaring back later this year,” McWilliams said. “There’s going to come a time when people are going to want to be out having fun and spending money.”

While the shutdowns had a big impact to start the pandemic, economists say the trajectory of the virus is now more influential for the health of the economy.

“We’re not going to recover until people feel safe again, regardless of whether the shutdowns have been in place or not,” McWilliams said.

If the majority of Michiganders are vaccinated by June, the economy will recover much faster than if it takes until December, Horrigan said. Michigan is getting close to 30,000 shots per day, but state leaders are aiming for 50,000 per day.

Once the pandemic is behind us, the big economic questions may center on which pandemic adjustments will stay for good and which we’ll be happy to throw away.

“There are so many questions in my mind. I think we’re going to learn a lot this year,” McWilliams said. “Is this the year that people started working home much more and that lasted? Or did it drive everyone so crazy we just couldn’t wait to get back into our offices? I don’t know.

“But compared with the Great Recession, I do think we will see a quicker recovery, overall. But I think people will always talk about 2020 as the year of the pandemic.”

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