Most regions were beginning to see an acceleration in economic growth during January and February 2020. The 20-state Heartland was poised to see a notable improvement in economic performance that will now be tested due to public health measures implemented to contain the spread of the coronavirus. The additional $200 billion in purchases of grain, industrial supplies and manufactured products over the next two years that China agreed to in the Phase I trade deal will benefit the Heartland greater than any other region of the nation. While that stimulus will be delayed until early summer, there will be a meaningful boost to the Heartland’s economy that should aid its recovery rate from COVID-19. The federal (both monetary and fiscal policy), state and local policy responses will be essential to mitigate the severity of the impacts and spur a more rapid economic recovery.
Regional Economic Impact Framework
To better understand the risks to regions of the country stemming from the coronavirus, and the Heartland, in particular, it is useful to consider the sources of the potential economic dislocation. In many respects, the practical impacts are similar to those experienced in the aftermath of the 9/11 terrorist attacks on New York and Washington. As in the case of 9/11, the economic injury will take aim disproportionately at a handful of sectors – travel, tourism, lodging, dining and recreation– the ramifications on communities and individuals will be acute in the near term. In the aftermath of the 9/11 terrorist attacks, commercial and private airline flights were grounded for nearly three weeks and travel and related economic activity was curtailed and resumed slowly. For a detailed analysis of the economic impacts stemming from the 9/11 terrorist attacks, many of which are applicable in the case of the coronavirus, please see “The Impact of September 11 on U.S. Metropolitan Economies,” on which I was the lead author and is available from the Milken Institute available at: assets1b.milkeninstitute.org/assets/Uploads/LegacyPublication/National-Metro-Impact-Report.pdf
However, the Centers for Disease Control (CDC), in a public health effort to contain the spread of coronavirus infections and associated deaths, has encouraged local officials where severe outbreaks have occurred to close restaurants, bars, sporting venues, museums and other locations where large gatherings occur. Many local officials are closing the venues voluntarily where inflections are just developing. People might have been forbidden to travel on planes after 9/11, but they were permitted to go to the local pub. Other communities are beginning to practice social distancing based upon recommendations from the CDC and NIH. The near-term negative impacts will be substantially more onerous than in the period after 9/11. The immediate impact is reflected in the new weekly state claims for unemployment insurance, which are poised to jump more in the coming weeks. Additionally, foreign air travel from Europe and many other countries have been banned by the federal government for a minimum of 30 days. International travelers to the U.S. occupy hotels for more nights while adding dollars to our economy during their visit.
Existing Infection Rates
The first mechanism to examine the likely magnitude of economic weakness is the number of cases by geographic area. The data will provide measures for assessing which locations will have the most severe restrictions on social interactions. For example, the seven-county San Francisco Bay Area has undergone a mandatory shelter-in-place order. Now the entire state of California is under a similar order. Based upon the latest information from Johns Hopkins Coronavirus Resource Center, the Seattle metro area is the most at risk for further restrictions on public gatherings and other mandatory shelter-in-place actions.
New York City and its suburbs will likely see further restrictions as well with new infections growing exponentially. At this point, the Governors of New York, Washington, Illinois, Florida, Texas, Pennsylvania, Connecticut and New Jersey have issued shelter-in-place orders with varying degrees. Thus far, New Orleans has the highest coronavirus infection rate in the Heartland as it is a major foreign tourist destination. Louisiana and Michigan are next in line and other states will soon join locations with mandatory shelter-in-place orders. These restrictions will likely stay in place longer and harm their economies more than other locations with lower infection rates. The good news is that so far the infection rate in most Heartland communities has been low. However, this might be a false sense of security as there are limited test kits available for COVID-19 and strict protocols for administering, leaving many Heartland locations with clear undercounts.
Another measure to consider as a gauge for future cases of the coronavirus is the prevalence of Chinese-born residents. Chinese-born residents have the highest propensity to travel to China and provides a measure of potential exposure before the full threat of the coronavirus was fully understood. Here, the West Coast has the highest susceptibility as already displayed by the outbreak so far. The San Jose metro area and its neighbor to the north, San Francisco, have the most significant exposure. Now that COVID-19 infections have spread to Europe, the foreign-born share of the population provides a better indication for its future spread. economy.com/economicview/analysis/378726/Quantifying-US-Regional-Exposure-to-COVID19
The New York metro area has substantial exposure, as well as the entire Northeast corridor from Washington, D.C. to Boston, and Chicago’s exposure is the highest in the Heartland. Heartland metros do not appear to have much exposure from likely travel to China and Europe, but it is not negligible.
Another predictive demographic characteristic to benchmark the future impacts is the elderly share of the population as coronavirus death rates are much higher among this group of Americans. Retirement communities in South Florida, both on the Atlantic Coast, and increasingly on the Gulf Coast are most exposed. Phoenix and Las Vegas have large retirement communities, too. The elderly share of the population should be a good predictor of which communities will implement the most draconian measures of social distancing. The Heartland is in pretty good shape on this category, but many of the former manufacturing centers have an elderly population aging in place. Cleveland, Detroit, Milwaukee and other northern Heartland metros are most at risk.
Read the rest of this piece at heartlandforward.org
Ross DeVol is President and CEO of Heartland Forward. Heartland Forward’s goal is to promote regional innovation and entrepreneurial ecosystems that foster job creation, wage gains and economic growth for the American Heartland.
Photo: jeshoots.com on Unsplash.