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Response + Recovery
The Allegheny ConferenceCOVID-19 Webinar Series
TODAY:“Making Sense of Current Econom ic Condit ions and Business Preparedness for
Reopening.”
P ro g ra m• W e lc o m e
• P re se n t a t io n
• Q&A Se ss io n
• W ra p -Up
W elco me: Ky le Ch in t alap alli
V ic e Pr e sid e n t , Busine ss and Ec o no mic De v e lo p me n t , A l le g he ny Co n f e r e nc e /
Pi t t sb u r g h Re g io nal A l l ianc e
Pr esent e r s:Guhan V enkat u
V ic e Pr e sid e n t f o r Re g io nal A naly sis, Fe d e r al Re se r v e Bank o f Cle v e land
V e r a Kr ekano v aCh ie f St r at e g y and Re se ar c h O f f ic e r ,
A l le g he ny Co n f e r e nc e
Q& A Mo d erat o r : Ky le Ch in t alap alli
W e lco m eKyle ChintalapalliAlle g he ny Co nfe re nce o n Co mmunity De ve lo p me nt/ Pittsb urg h Re g io na l Alliance
Gu h a nVe n t a kuFe d e ra l Re se rve Ba n k of Cle ve la n d
Economic Conditions
The views expressed herein are those of the author and not necessarily those of the Federal Reserve Bank of Cleveland or of the Board of Governors of the Federal Reserve System.
Guhan Venkatu
Allegheny Conference on Community Development Webinar | May 15, 2020
US economic activity fell sharply in first quarter
-10
-8
-6
-4
-2
0
2
4
6
Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Jan-20
Quarter-over-quarter percent change, SAARQuarterly Real GDP Growth
Source: Bureau of Economic Analysis via Haver AnalyticsLast data point: 2020:Q1.
-4.8%
-8.4%
• Worst since 2008:Q4 (-8.4% a.r.)• Followed significant financial market disruptions
• Lehman Brothers bankruptcy• Federal takeover of AIG
• What was longest expansion on record likely over• ½ year longer than the expansion of 1990s
Public and private projections suggest Q2 will be worse
-10
-8
-6
-4
-2
0
2
4
6
Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Jan-20
Quarter-over-quarter percent change, SAARQuarterly Real GDP Growth
Source: Bureau of Economic Analysis via Haver AnalyticsLast data point: 2020:Q2.
• Public/private projections anticipate declines of 40% (a.r.) in Q2• CBO 4/24 Projection:
• Q2: -40% | Q3: +24% | Q4: +11%• Full Year 2020: -6%
• Q2 projection would be worst in post-WWII period• 1958:Q1: -10% Also a pandemic period
-40%
US unemployment rate reached new record in April
0
2
4
6
8
10
12
14
16
Jan 2006 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Jan 2016 Jan 2018 Jan 2020
PercentUnemployment Rates
Source: Bureau of Labor Statistics via Haver AnalyticsLast data point: Mar 2020.
• Highest unemployment rate in post-WWII period• Largest monthly increase in series history (since ‘48)
• +15.9M individuals unemployed in April• 23.1M currently counted as unemployed
• Possible bright spot: ~80% classified as temp. layoff• Number employed: 133.4M
• -22.4M (-15.9 unemployed + -6.4 leaving labor force)• LFPR falls to 60.2% (-2.5 pp) Lowest since 1973
14.7%
Stress is most acute for those that don’t have a college degree
0
5
10
15
20
25
Jan 2006 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Jan 2016 Jan 2018 Jan 2020
Percent of labor force participants over age 25Unemployment Rates by Educational Attainment
Source: Bureau of Labor Statistics via Haver AnalyticsLast data point: Apr 2020.
Less than HS: 21.2
HS graduate: 17.3Some college: 15.0
BA or higher: 8.4
By Sector
• Leisure/Hospitality: -7.7M (38%)
– Restaurants: -5.5M
• Education/Health Services: -2.5M (12%)
– Health Care: 1.4M | Child Care: 0.3M | Private Education: 0.5M
• Professional/Business Services: -2.1M (10%)
– Temporary Help: 0.8M | Services for Buildings/Dwellings: 0.3M
• Retail: 2.1M (10%)
– Clothing: -0.7M | Motor Vehicles: -0.3M | Warehouse Clubs/Supercenters: +0.1M
• Manufacturing: -1.3M (6%) Largely Durable Goods Mfg.
• Government, Construction: ~ -1M (5%) Largely Local Government (Schools)
US employment declined by a breathtaking 20.5M jobs in April
David Autor
• Risks surrounding in-person services till there is a vaccine– De-densification of work places, shopping malls, restaurants
• Automation accelerating event– Manufacturers finding that they can get more done with fewer workers– Knowledge workers can do more through telecommunications
• Re-allocation of activity towards larger firms– Crisis could weed out more small- and medium-sized enterprises– Tend to be better capitalized/less labor-intensive
• Changes in demand for certain services– Reduced business travel (decline in hospitality and other types of service jobs)– More telecommuting (reduced demand for cleaning, food service, security work)– Shrunken retail sector
Lasting Labor Market Changes Post COVID-19
UI claims have surged since mid-March
25
27
13 16
22 12
CT = 36
DE = 21
21
42
33
17
17 2222
19 48
31
20
MD = 17
MA = 27
38
24
22
21
22
1430
NH = 25
NJ = 25
15
22
21
23
23
23
19
31
RI = 35
26
14
17
14
10
18
18
29
21
1713
DC = 26
Less than 15.0
15.0 to 19.9
20.0 to 24.9
25.0 to 29.9
30.0 to 34.9
35.0 to 39.9
40.0 to 44.9
45.0 and above
Since March 15, 2020 (eight week sum), percent of labor force participants in Feb 2020Initial Unemployment Claims
United States: 22Source: Department of Labor via Haver AnalyticsData for week ending: May 9, 2020.
• 2.0M filings from 3/15 to 5/9• ~ 31% of PA’s Feb. labor force (6.6M)• Filings have fallen from >400K in last 2 weeks of March to
under 100K in week ending 5/9
Pennsylvania
• PA has paid out roughly $5.3B so far
– Standard state benefits of $3.9B + FPUC benefits of $1.4B
– 3X 2019 payments and more than that paid in all of 2009 (GR)
– State system designed to replace about ½ of income
• Additional $600 benefit raises replacement rate above 100%
• Still significant backlog
– Labor and Industry Department says 3 of 10 claims are still unprocessed
– PUA payments not expected to begin till last week
– E-mail inquires currently take about a month to address
• UI trust fund likely exhausted
– Started 2020 with $3.4B; debt from GR recently repaid
Unemployment Assistance
COVID Crisis-Related Lending Programs
14
Program Purpose Dollar amount
Paycheck Protection Program (PPP)
The Paycheck Protection Program (PPP) was established by the CARES Act and implemented by the SBA to support the payroll and operations of small businesses through the issuance of government-guaranteed loans that include a forgiveness feature for borrowers who satisfy the requirements of the PPP. The FRS established a PPP Liquidity Facility (PPPLF) to extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value.
$360B
Main Street Lending Program (MSLP)
The Federal Reserve designed the MSLP to support small and medium-sized businesses that were unable to access the PPP or that require additional financial support after receiving a PPP loan. Main Street loans are not forgivable.
$600B
Primary & Secondary Market Corporate Credit Facility (PMCCF/SMCCF)
The Federal Reserve established the Primary Market Corporate Credit Facility (PMCCF) to support large companies through the purchase of eligible corporate bonds from, and lending through syndicated loans to, large companies. PMCCF loans are not forgivable.
$750B
88
77
82 69
89 79
CT = 97
DE = 77
68
82
101
69
90 9184
91 79
92
69
MD = 92
MA = 105
94
96
74
75
55
8380
NH = 88
NJ = 89
67
82
72
93
104
78
75
93
RI = 82
72
77
94
96
86
69
85
80
70
9460
DC = NA
Less than 60.0
60.0 to 69.9
70.0 to 79.9
80.0 to 89.9
90.0 to 99.9
100.0 and above
Thousands of dollars per small business in 2016Paycheck Protection Program
Sum of states: 86Source: Small Business Administration and Census Bureau's Statistics of US Businesses.
PA ranks 10th in PPP funding per small business through 5/1
• PPP Total: $21B• Round 1: $16B• Round 2: $5B
• Ranks 6th overall
Mixed Picture, but Trajectory Expected to Worsen
• American Bankruptcy Institute
– Both total bankruptcy and Chapter 7 (liquidation) filings fell in April
• National Association of Credit Management
– Survey showed increase in number of respondents’ customers filing for bankruptcy to the highest level since 2009, but well below peak during financial crisis
– Dollars of receivables beyond terms because customers have fallen behind on payments, rose to higher level than seen during financial crisis
• Bloomberg Bankruptcy Dashboard
– Has risen close to the post GR-high for index, but remains below GR peak
Business Bankruptcies
Source: Goldman Sachs Research.
Most economic measures took years to recover from GR
17
Peak before GR Reached Again Duration
Real GDP 2007:Q4 2011:Q2 2.5 years (14 qtrs.)
Real Personal Consumption Expenditures November 2007 August 2010 2.75 years (33 mos.)
Real Private Nonresidential Fixed Investment
2008:Q2 2012:Q1 2.75 years (15 qtrs.)
Industrial Production December 2007 June 2014 6.5 years (78 mos.)
US Employment January 2008 May 2014 6.33 years (76 mos.)
PA Employment April 2008 December 2014 6.67 years (80 mos.)
Pittsburgh Employment May 2008 November 2011 3.5 years (42 mos.)
University of Michigan
• Will the initial efforts to reopen the economy blunt the six-week surge in unemployment claims to 30 million, or will the efforts to reopen the economy only result in a resurgence in coronavirus infections and a renewed and more lasting slump in confidence?
• When asked whether conditions would be good or bad through the next 12 months, the majority of consumers expected much smaller income gains, and the majority (68%) evaluated the overall state of the economy as representing “bad times financially.”
• Moreover, when consumers were asked to explain their views on buying conditions for household durables, half of all consumers mentioned that they were postponing purchases due to uncertainty about future job and income prospects.
Consumer Sentiment
Source: University of Michigan, Survey of Consumers, April 2020.
Scenarios suggest that infections will persist
University of Minnesota, Center for Infectious Disease Research & Policy
SCENARIO 1Peaks and Valleys
SCENARIO 2Fall Peak
SCENARIO 3Slow Burn
2020 2021 2022 2020 2021 2022 2020 2021 2022
https://www.cidrap.umn.edu/sites/default/files/public/downloads/cidrap-covid19-viewpoint-part1_0.pdf.
Ve raKre ka n o vaAlle g h e n y Con fe re n ce
ACCD Survey: Business Preparedness for Reopening & Expectation for Recovery
21
Firms with regional footprint, 78%
Firms with national footprint, 13%
Firms with global footprint, 9%
320 businesses participated; responses collected between April 25 and May 4, 2020
Other20%
Professional Services18%
Hospitality, Culture & Entertainment
9%
Manufacturing8%
Education7%
Construction6%
Healthcare & Social Assistance
6%
Retail6%
IT & Tech5%
Financial Services5%
Real Estate5%
Government3%
Logistics & Transportation1%
Energy 1%
Mixed Perspectives: Strong confidence in relatively fast recovery for some businesses, high uncertainty and inability to predict for others.
22
8.9%
17.6%
16.3% 16.3%
3.5%4.2%
3.2%
18.2%
11.8%
When do you expect your business to FULLY reopen in the Southwestern PA region?
59.1% 30%
18.0%
24.8%
21.2%
16.7%
19.3%
Given current information, how long do you anticipate that it will take for your firm’s output to return to pre-crisis levels?
42.8% 36%
7.9% 10.3% 13.8%
18.6% 15.4% 10.3%
16.9% 15.4%13.8%
15.3%
30.8%
6.9%
3.3%
2.6%
6.9%
4.1%
5.1%
3.4%
2.9%
2.6%
6.9%
18.6%
10.3%
24.1%
12.4%7.7%
13.8%
Regional National Global
When do you expect your business to FULLY reopen in the Southwestern PA region?
Already fully open By mid-May By end of May By end of June By end of July By Labor Day By Thanksgiving or later Whenever is safe Not sure
59%
Employers with a national presence predict the fastest reopening of their businesses, global firms the slowest.
23
72%
45%
Differences in recovery timeframes are less distinct; with national firms being the least optimistic in returning to pre-pandemic outputs within 6 months.
24
16.8%
27.0%
13.8%
26.9%10.8%
27.6%
20.6%24.3%
24.1%
15.1%24.3% 20.7%
20.6%13.5% 13.8%
Regional National Global
Given current information, how long do you anticipate that it will take for your firm’s output to return to pre-crisis levels?
3 months from now 6 months from now 12 months from now Longer than a year from now Not sure at this time
44%
38% 41
%
Close to 90% of businesses have taken some measures to adjust to the COVID-19 disruptions. Increasing cash reserves and curtailing expenditure, and adjusting staffing and operations levels were among the most frequently implemented.
25
57%
37%
26%
37%
25%
30%
29%
24%
12%
8%
26%
1%
63%
34%
26%
36%
24%
31% 31%
22%
9%
5%
27%
0%
41% 44
%
26% 28
% 31%
23%
13%
28%
21%
21%
21%
3%
31%
55%
21%
66%
28%
34%
34%
41%
28%
17%
28%
7%
Applied for newforms of financing
Increasedprecautionary
reserves
Increased use ofexisting credit lines
Delayed orcancelled planned
capex
Delayed orrenegotiated
payables
Reduced employeehours
Laid off workerstemporarily
Furloughedworkers
Cut employee pay Laid off workerspermanently
Ceased operationstemporarily
Ceased operationspermanently
Cash Reserves Payments & Capex Staffing Operations
What measures has your firm taken to adjust to COVID-19 related
All Firms Regional National Global
Close to 77% of all firms have sought new forms of financing but only 46% were able to secure it. Firms with a national presence were the most successful, firms with a regional presence the least.
26
Has your firm been able to access additional financing to address any cash flow interruptions you may be facing?
46% 44%
64%
38%
31% 35%
14%
14%
23% 20% 22%
48%
All Firm Regional National Global
We sought access to additional financing and were able to secure it
We sought access to additional financing but were unable to secure it
We have not needed to seek additional financing
72.8
%
54.3
%
53.7
%
42.2
%
35.8
%
29.4
%
19.8
%
73.6
%
55.4
%
52.5
%
42.6
%
38.4
%
31.4
%
22.3
%
76.9
%
56.4
%
53.8
%
43.6
%
23.1
%
23.1
%
5.1%
69.0
%
44.8
%
62.1
%
37.9
%
31.0
%
24.1
%
20.7
%
Lifting of the statewide stay-at-homeorder
Clear guidance from policy makers onworkplace safety requirements
Employees having the information andability needed to follow proper health
safety protocols in the workplace
Broad availability of personalprotective equipment and sanitizing
supplies
Long-term downward trend in cases Sufficient population has been tested Vaccine or viable therapeutic solutionavailable
All Firms Regional National Global
Businesses are considering multiple factors in their decision-making about reopening. Top 3 triggers include the lifting of stay-at-home orders, preparedness of employees to behave safely in the workplace, and clear guidance from policy makers.
27
What specific "triggers" will influence the decision for your business' reopening?
74.1
%
71.2
%
65.5
%
46.6
%
45.4
%
23.6
%
73.1
%
70.2
%
64.5
%
43.0
%
42.6
%
22.3
%
74.4
%
82.1
%
71.8
%
46.2
% 51.3
%
23.1
%
82.8
%
72.4
%
69.0
% 72.4
%
58.6
%
37.9
%
Developing policies and procedures to preventthe virus spread in the workplace
Procuring masks and other protectiveequipment
Procuring necessary supplies/services toensure effective workplace sanitation
Restructuring physical space to accommodatesocial distancing in the workplace
Restructuring staffing to better protectemployees
Restructuring the entire business model toaccount for broader aspects of COVID-19
impact
All Firms Regional National Global
Most businesses are actively preparing for reopening, but the depth of these efforts is still lacking. Firms with global and national presence are more active and likely to pursue a broader range of strategies.
28
What measures has your firm been taking to prepare your business for reopening?
76%
74%
54%
50%
50%
50%
74%
71%
50%
48%
48%
49%
90%
90%
59%
54%
51%
46%
90%
90%
79%
76%
62% 66
%
Having the ability to effectively operationalizeregulations from public officials
Complying with the requirement to continuetelecommute
Having the ability to recall laid off staffreluctant to come back for health concerns
Perform employee health and safetyscreening
Having the capacity to ensure hospital-levelsanitation
Having the ability to recall laid off staff whomay be reluctant to come back for economic
reasons
All Firms Regional National Global
29
What is your firm’s confidence level with the listed aspects of business preparedness for reopening?Values denote the cumulative share of businesses that are “very confident” or “somewhat confident” in their ability to handle each task.
Businesses, particularly smaller and regional firms, do not feel well-equipped to handle all the practicalities of stipulated conditions for reopening. Only about half of firms feel confident in their ability to recall laid off employees, ensure hospital-level sanitation and perform employee health screening.
30
29%
31%
27%
8%
4%
Much too soon
A bit too soon
About right
A bit too late
Much too late
11%
28%
20%
14%
10%
2%1%
0%
13%
Reopening the Regional Economy
When Will the Pittsburgh Economy Fully Reopen? Beginning to Reopen early May is…
CONSUMER PERSPECTIVE: Most residents believe the Pittsburgh economy will not fully reopen until sometime in the summer, 60% also believe beginning to reopen early May is too soon.
31
Reopening the Regional EconomyCONSUMER PERSPECTIVE: Residents have mixed feelings about returning to work but are committed to behaving safely.
22%
36%
4%
9%
18%
27%
5%
19%
12%
10%
5%
12%
17%
10%
20%
34%
31%
17%
66%
26%
I'm ready to return to my workplace
I feel comfortable going back to work in May
I'm willing to take any precautions & safety measures necessary
I trust my coworkers will behave safely
Consumer Sentiment toward Returning to Work
Strongly Disagree Disagree Neutral Agree Strongly Agree
Q & AModerated by:
Ky le Chint alap alliA lleg heny Co nf e rence /Pit t sb urg h Reg io nal A lliance
Response + Recovery
The Allegheny ConferenceCOVID-19 Webinar Series
TODAY:“Making Sense of Current Econom ic Condit ions and Business Preparedness for
Reopening.”
Alle g h e n yCon fe re n ce .o rg /COVID-19
Th a n k yo u fo r p a rt ic ip a t in g .Stay tuned for upcoming programs in theAlle g he ny Co nfe re nce ’s Re sp o nse + Recovery Webinar Series …
and find an a rchive o f o ur we b ina rs and re la te d ma te ria ls a t the re g io n’s COVID-19 Re sp o nse site :
AlleghenyConference.org/ COVID-19