The routine began in the past week for the 50 workers at Florence’s OnPoint Manufacturing plant.
Every morning at the women’s apparel factory its employees and any incoming suppliers have to line up to have their temperatures taken before entering the factory.
Nobody has gotten over the threshold of 100.5. If they did, they would either be sent home or to seek medical care, CEO Kirby Best said. He was afraid there might be pushback, but so far, there hasn’t been.
Such is life at an Alabama industry and in a state economy already beginning to show signs of unraveling due to the coronavirus.
The early numbers are frightening. The Alabama Department of Labor has seen 6,062 claims for unemployment benefits in three days this week. Labor received 5,819 for the entire month of February.
But there have been a few tiny bright spots. One of those is Amazon is about to open its new 1,500-employee fulfillment center in Bessemer and also add 600 jobs statewide to address the demand of at-home delivery.
And OnPoint has already put in a response for a request from the federal government for industry to make certain products for healthcare, such as scrubs, gowns and lab coats. The attitude of workers has been positive, Best said, with the biggest challenge coming from a constant barrage of rumors about what might happen.
“The challenge has been running scenarios,” Best said. “What if this happens, or this? Just mentally preparing for what could happen and how long it could happen. Shutting down for two weeks? We could do that. Three months, we’re going to be pretty concerned.”
That’s just a few days for one factory in Alabama, a state of more than 4.8 million people with a gross domestic product of almost $221.1 billon.
When Thank You Books opened on Crestwood Boulevard in Birmingham back in December, its owners had no idea that a pandemic was coming.
After two good months of business, by Tuesday, floorspace closed at the bookstore in accordance with coronavirus restrictions. At the same time, co-owner Kristen Iskandrian said, people began swamping the store’s website to order books during their home sheltering. Customers could come and pick up purchases, or get them delivered within a six-mile radius. Hot items, besides books, were puzzles.
“They’re things you don’t think you need until there’s a pandemic,” Iskandrian said.
Yet economic activity was brought to a virtual halt within the last week due to strict sheltering requirements mandated to stem the disease’s spread.
Bars and restaurants were closed or forced to serve through take-out and delivery. Other workers began finding routines through their laptops. Many others face the very real possibility of losing their jobs, while small business owners are wondering how long they can hold on. As Iskandrian said, “it’s a number’s game.”
“We have a good sense of our budget and how we need to prepare for eventualities,” she said. “You don’t necessarily open a business expecting a pandemic. We’re improvising.”
Finding a way forward is a challenge for those in the office and out on the floor, throughout the state and the nation. The Business Council of Alabama is offering a few bullet points on its website for members, saying the spread of coronavirus will act as a drag on growth globally, but that “consumer confidence is the wild card.”
Alabama Secretary of Commerce Greg Canfield said Gov. Kay Ivey has issued measures that aim to flatten the rate of infection over the course of a three-week period.
“At the same time, the governor has exercised caution so as to lessen as much of the dampening effect on our state economy as is possible, which is particularly difficult when operating under health measures designed to maintain spatial separation of people in public and work settings alike,” Canfield said. But still, there are losses already being felt in service sectors and factory slowdowns.
Keivan Deravi, CEO of Montgomery’s Economic Research Services, is a retired professor of economics at Auburn University at Montgomery. He says – like President Trump did in a Tuesday news conference – that it’s almost certain the U.S. is headed for a recession by the second quarter.
The only questions are how low the economy can go, and how long it will last. It looks to hit Alabama in its major sectors – manufacturing, aerospace, tourism – as well as retail. The impact has been immediate everywhere. Just outside Deravi’s office window, he said, is a hotel. Where there was once a full parking lot just days ago, now there’s only a few cars.
The effect is obvious: If people are hunkered down in their homes and apartments, they aren’t out spending money in stores, theaters or restaurants, or flying to vacations, or booking hotel rooms, or making big ticket purchases. One example is in Huntsville, where Huntsville International Airport yesterday projected revenue losses between $7 to 10 million over the next three months because of the hit from passenger traffic.
“Industries dependent on consumer spending directly, they’ll be impacted the most,” he said. “I think that hourly people will be disproportionately impacted. We anticipate consumption may drop nationally between 4 to 5 percent, which is humongous. They’ve already downgraded the GDP by a third.”
The virus has affected work and commerce at all levels in Alabama. On Wednesday, Honda and Hyundai both announced production stoppages at their plants. Honda made the decision for all of its North American plants, while Hyundai closed its Montgomery plant after one employee tested positive for COVID-19.
Mercedes-Benz is at risk of shutting down in Vance because of a shortage of parts coming from Europe, Bloomberg reported. The plant has ceased overtime at one part of the plant and moved to a six-hour shift at another.
How big an impact will that have? A study last year found that Honda, by itself, contributes 5.4 percent to the state’s total gross domestic product. It also accounted for more than $3.45 billion in non-payroll expenditures, and paid $202.9 million in taxes, with $113.4 million in state and $82.2 million in local taxes. All those numbers will be smaller this year.
Meanwhile, construction continues at the $1.6 billion Mazda Toyota plant in Huntsville, for the moment.
But how bad will it get?
Ahmad Ijaz is the director of economic forecasting at the University of Alabama’s Center for Business and Economic Research. He expects a drop in consumer and business spending and heavy layoffs in travel-related services, leisure and hospitality, eating and drinking establishments.
For an idea how hard the impact could be, it may be instructive to look at the country most affected by the coronavirus outbreak – China.
According to data released this week, retail sales of consumer goods in China, the world’s second largest economy, dropped 20.5 percent year-on-year in January and February. Online sales of physical consumer goods increased 3 percent, accounting for about a fifth of overall retail sales. Industrial production fell 13.5 percent. All of these numbers were well below estimates.
And about 5 million people were said to have lost their jobs in the first two months of this year as a result of the outbreak, according to CNBC, though that number is disputed by some because of the way the Chinese government tracks unemployment.
Nationally, Moody’s Analytics says almost 80 million jobs in the U.S. economy are at high or moderate risk due to the outbreak, which is more than half the total number employed. In Jefferson County, up to 66,000 workers could suffer layoffs or other loss of income due to business closures, or 13 percent of the total workforce.
Canfield said the example in China and in Europe proves one thing. “The more rapidly people can be tested and isolated from human-to-human contact if they test positive for COVID-19, the more quickly the rate of infection can be reduced,” he said. “That should result in being able to return more quickly to a more normal level of economic activity which means less negative impact on a state’s economy.”
In Alabama, memories are still fresh of the Great Recession, touched off in 2008 by a collapse in the housing market due to questionable loans. The fall of big banks and the failure of a bank bailout bill in Congress worsened financial instability and fed a market collapse. By some measures, it took more than a decade before Alabama’s jobless rate and consumer earning power recovered.
In October 2008, Alabama’s unemployment rate was 5.9 percent. Exactly one year later, that same number had exploded to 11.8 percent. The state’s gross domestic product fell by $6 billion by 2010. Sixteen percent of Alabama construction jobs were gone in just two years. Birmingham in particular spent about a decade still coping with lost jobs and investment.
The effects of the pandemic arrive at a moment when Alabama’s economy is roaring. The state just posted two consecutive months of its best unemployment numbers ever, at 2.7 percent, which continued a trend of steady and historic rising employment going back more than a year. Exports from state industries, in spite of international trade disputes, topped $20 billion for the fourth year in a row. Projected single family housing starts in January increased 6.9 percent from the previous month and 22 percent over the same time last year, according to the University of Alabama’s Center for Real Estate.
Deravi said the best way to visualize the Great Recession would be a “U” – a valley that’s deep and long, because the economic disruption came due to internal problems. Any recession rising out of the coronavirus pandemic might resemble a “V” – a sudden sharp drop followed by a spring up, because the disruption is external. What is happening right now is a basic interruption of most economic activity – from finance to manufacturing to consumer activity.
“Once we’re out of it, we should bounce back pretty strongly,” he said. “The concern now is not to have so many people hurt and displaced. It’s going to be painful in the short run, but bouncing back should be much faster.”
Ijaz agreed, saying “pent up demand” and a relatively higher degree of optimism among consumers and businesses would send the arrows back up again.
The only problem is if the slowdown stretches on into the summer and fall, in which case, the damage inflicted will be more severe. Ijaz said if the quarantine measures are lifted in the short term, the economy could rebound by the third or fourth quarter.
Longer, and you “can kiss the 2020 economy goodbye and into next year,” Deravi said.
“We can’t hunker down economically that long. These are adjustments we haven’t had in such ferocity in such a short time. Fear is an amazingly powerful negative force in the economy,” he said.
Add to that the jobs that will suffer in the short term in service, tourism and retail.
The slowdown will have an effect on state revenue as well. Besides regular tax revenue that will decrease as economic activity slows down, both the federal government and the state revenue department have announced 90-day extensions for income tax collection, meaning a lot of revenue will come later.
Congress this week approved a package of aid with a larger one looming to help taxpayers. The Treasury Department is floating an idea with Congress for $500 billion in direct payouts to citizens as part of a $1 trillion stimulus package. According to sources, the payments would come in April and May, tiered to income level and family size. The idea is they would be used to tide Americans over until the slowdown ends.
Canfield said the Commerce Department has been working with Ivey, the Small Business Administration and the Small Business Development Center to request eligibility for Alabama’s small businesses in the SBA Emergency Loans program as a financial bridge during the outbreak. There’s also information on the Commerce Department website about virus mitigation efforts.
There is another silver lining for one segment of Birmingham. The coronavirus crisis is putting a premium on health care workers, a sector where there was already a shortage. According to MarketWatch, the demand should only intensify as the country copes with the effects of the outbreak.
The new normal
But the economic landscape will inevitably be different once people reemerge from their homes to return to restaurants, shopping centers and hotels. Just as the 2008 recession gave birth to disrupter businesses, weeks of flattening the curve will change consumers and their spending habits.
“Once people get used to grocery deliveries, for example, I don’t think they’ll go back,” Deravi said. “There will be a new normal.”
What can a person, just trying to earn a living, do right now? Canfield said Alabamians have to follow the CDC and ADPH guidelines to disrupt the rate of infection.
“Businesses of all sizes are going to have to become agile and creative in maintaining their customer base or market,” he said, noting that many businesses, like restaurants, are already adjusting by providing app-based ordering and delivery.
Deravi said follow, as much as possible, normal life routines.
“Right now, if you have the resources, eat the same way, act the same way, minimize the social gathering to contain the virus,” he said. “This will be short lived. It will be severe, but I have no doubt the economy will come back with velocity and venom to replace what was lost.
“But not everyone,” he warns, “will regain everything.”
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