Georgia Southern’s Q1 2020 Economic Monitor: Pandemic slams regional economy, outlook remains murky
Governmental response to the pandemic shuttered much of the regional economy toward the end of the first quarter of 2020, stated Michael Toma, Ph.D., Fuller E. Callaway professor of economics, in Georgia Southern University’s Q1 2020 Economic Monitor. Economic growth ground to a halt as seven of the eight indicators of current economic activity in the region fell. Significant declines were recorded in airplane boardings, hotel sales and port activity.
The business forecasting index fell sharply in the first quarter, as initial claims for unemployment insurance skyrocketed during the last week of March. All six leading indicators declined, and further signs of economic damage will be forthcoming in second quarter data, noted Toma.
“Looking ahead, the regional economy will experience sharp contraction in the second quarter, likely extending into the third quarter of 2020,” he continued. “The speed of rebound and recovery will be influenced primarily by how people react to governmental easing of restrictions on business activity. More substantial economic recovery will be delayed until such time that business owners, employees and consumers develop a greater level of comfort interacting with each other in the public domain.”
Regional Expansion Ends
The Savannah metro economy contracted modestly by 0.1% during the quarter. The coincident index of economic activity decreased from 192.7 to 192.5. However, this overstates the level of economic strength, given that economic conditions did not deteriorate more substantially until March so that overall quarterly data was buoyed by monthly data from January and February.
The index of current economic activity was weighed down primarily by declines in tourism indicators and port activity but also less so by electricity sales and retail sales. Preliminary reports indicate hotel occupancy rates plummeted into the single digits by the end of the quarter and hotel tax revenue data reeled accordingly. Electricity sales to residential, commercial and industrial users were down in the quarter but remain about 9% above year-ago levels.
Reported employment in Savannah’s three-county metro area was 186,300, unchanged from the previous quarter. However, this is likely to be revised downward in the coming months. The payroll employment data is based on a sample of businesses, and the methodology used to extrapolate to all businesses incompletely captures turning points in the data. In other words, explained Toma, the payroll employment data are currently overstating current employment. Jobs in service sectors, particularly leisure and hospitality, retail trade and health care are likely to be revised downward by the largest amount, as these sectors were hit hardest by shutdown orders.
In the goods-producing sectors, manufacturing and construction gained 200 workers each. Manufacturing employed 19,500 workers while construction sector employment increased to 8,500.
Hourly wages in the private sector declined to $22.47. The length of the workweek shortened modestly to 32.9 hours, a 1% decline. The length of the workweek is expected to contract sharply in the second quarter, yet average hourly wages are likely to artificially increase as substantial numbers of lower-wage workers lose their jobs.
The tourism economy is battered. Employment in the leisure and hospitality sector declined by 400 workers, falling to 27,300 and is assured to further decline. Roughly 65% of total regional claims for unemployment insurance in March were filed by workers in the tourism sector. Airplane boardings fell 17%, while rental car tax receipts fell 13%. The number of visitors on guided tours in Savannah fell 35%. Because the initial economic effects of the pandemic appeared in March, not throughout the quarter, tourism sector data will continue to deteriorate significantly in the second quarter.
Deterioration Expected in Savannah Region
The Savannah area business forecasting index plunged 2.8% during the first quarter of 2020. All six leading indicators declined, but particular weakness in the labor market weighed most heavily on the index.
Starting first with the regional housing market, the seasonally adjusted number of single-family homes permitted for construction decreased 12%, falling to 549 units from 625 in the previous quarter. Average valuation per single-family unit decreased 3% to $219,700 from $226,200. This is roughly 3% less than the average during the previous four quarters.
In the labor market, the average number of monthly initial claims for unemployment insurance (UI) skyrocketed sixfold to 2,942 from 490 in the fourth quarter. In March alone, 7,608 claims were filed. UI claims are running at roughly twice that amount through April. The seasonally adjusted unemployment rate increased eight-tenths of one percentage point to 3.6% for the first quarter. The rate is trending up significantly, as the March unemployment rate was 4.3%. Given the number of UI claims recently filed, expect the regional unemployment rate to increase into the 15% to 20% range during the second quarter.
The initial UI claims data shed light on which sectors are likely to experience the largest declines in reported employment in the second quarter. Among the largest seven sectors (with more than 14,000 workers), accommodations and food services has the largest number and share of workers filing for UI benefits, roughly 90% of total workers. Retail trade, health care and administrative support each saw about 33% of their workforce file UI claims. For the region as a whole, roughly 35% of the workforce filed for UI benefits through April. Larger sectors with lower-than-average UI filings include manufacturing (13%), logistics (12%) and education (6%).
While pent-up consumer demand will fuel the beginning of recovery, household saving has increased significantly amid increased economic uncertainty. People-intensive service sector businesses with higher-than-average UI filings, especially those in the leisure and hospitality industry, are expected to recover more slowly as employers, employees and consumers begin to navigate the uncertainty associated with the new normal of the pandemic economy. Consumer spending will drive the rate of recovery that is now more likely to resemble a swoosh than a V-shaped or U-shaped recovery. Economic conditions will begin to improve during the third and fourth quarters, but most robust recovery in consumer-driven sectors will be delayed well into 2021.
Hyeeun Shin provided research assistance.
A Note from the Analyst
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About the Indicators
The Economic Monitor provides a continuously updated quarterly snapshot of the Savannah Metropolitan Statistical Area economy, which includes Bryan, Chatham and Effingham counties in Georgia. The coincident index measures the current economic heartbeat of the region. The leading index is designed to provide a short-term forecast of the region’s economic activity in the upcoming six to nine months.
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