Less straightforward economic effects?

The Quarantine Zone
1

With all the shutdowns, the obvious economic effects are things like lost jobs, reduced spending on discretionary expenses even for those whose income is unaffected, stores / restaurants going under, and so on.

Take it a step further and you’ve got the next tier of losses: suppliers to those stores / restaurants, manufacturers, farmers whose produce can’t get to market etc.

Landlords aren’t collecting rent so they don’t (or can’t) perform maintenance: their maintenance staff isn’t getting paid, their buildings develop more significant issues as a result, they aren’t investing in new properties…

People are unable to pay their mortgages, so foreclosures jump, the housing market tanks, banks get into trouble…

Hospitals get overwhelmed by unpaid bills in the midst of needing to pay overtime to their staff…

People have lingering effects from COVID, leaving them unable to work for months, years or ever: that’s a loss of income to them, loss of whatever they would have produced, loss of tax revenue, and a drain on public / private disability funds - as well as lingering increased medical expenses.

Reduced overall spending causes municipalities to lose sales and property tax revenue, while being required to provide the same level of services, causing them to need to bump up tax rates, causing hardship on the places / people that ARE still generating income…

Others?

There are plenty of articles on the more obvious sort-term economic issues and how they might linger, but I’m not having any luck finding any discussion of the more hidden / longer term economic effects.

2

Our city isn’t losing much in the way of sales tax (that’s collected at the state and county level) or property tax (the portion of your property tax that goes to the city is ridiculously low) but we are losing and will be losing oodles in income tax. We get about 57% of our yearly total revenue from income tax collection.

We can’t really raise the income tax level as we raised it to be fairly high (2.5%) in the past 4 years. We could do a temporary short-term tax increase but I don’t feel comfortable asking for that just yet.

We went in to March 2020 with the budget balanced and all sorts of wonderful projects planned, finally ready to start putting to use those recent income tax increases. Now we’ve got to cut the budget by $3.5mm (annual revenue about $25mm) and it’ll take a few years to recover, I think. And if our local businesses don’t recover, we’ll continue to take a hit year after year.

3

What about children who aren’t receiving the normal level of education? Will that impact the quality of the workforce in the future?

4

A friend works at a veterinary clinic. They have seen an increase in the number of euthanasias they are doing for animals that are not obviously ill, just “older”. They saw the same thing during the recession.

Shelter workers have told me that there was a huge increase in adoptions when people learned they were staying home for a month or more. The problem is, when people go back to work and the pet’s circumstance changes or when money becomes tight and pet food is no longer a necessity.

5

Would it really be temporary? When gasoline prices were crazy high, I had a fuel surcharge added to many invoices. Today they are practically giving gasoline away, and those fuel surcharges are still on every invoice. :slight_smile:

6

One approach is to start with one industry and see how impacts of it have other secondary effects …

I go to healthcare. Many smaller, especially rural hospitals will simply fold as this passes by. Even big healthcare systems are hurting bad right now, but most of them will be able to weather it (and make some up meeting pent up demand on the other side). Any smaller groups left may take any life preserver a bigger system can throw their way. So further consolidation and further shortage of care where it already in short supply. (Even in metro areas many small to medium sized groups won’t survive the year and will be bought up by those who can do the buying for pennies on the dollar.) FWIW in rural communities with a hospital the hospital and its system are usually the biggest or second biggest employer.

So worst healthcare industry impact may be in rural communities, in which healthcare is a major part of the economy, and if they do indeed, as I and some others expect, still get hit with COVID-19, but maybe a bigger late summer to fall surge, possibly overlapping with influenza?

But wait! Don’t answer yet. Add in to that question that the oil and gas industry had also become a lynchpin in many of these economies. It will be a long while until that starts booming again. And that the food chain has mainly links broken so farmers hanging on hoping for eventual positive impact from Trump’s trade wars will be thrown an anchor not a life preserver.

I see little way that this does not result in near Dust Bowl impacts across much of the rural landscape, even if their mortality rate never gets very impressive.

A beneficiary will be rural video visit providers and companies that enable getting better data for decision making during such remote encounters.
Reference made to oil and gas above. It will now likely stay cheap for a while, if just as a consequence of large reserves built up. A Green Revolution is a harder sell when gas is so cheap. Alternative energy sectors will be hit hard for a bit. Automakers who have invested expecting a big increase in electric vehicle sales may be disappointed. Air is cleaner right now but once things pick up burning oil and gas when possible will be the cost effective option, and doubling back to healthcare, greater needs for it due to the impacts of particulate pollution, and longer term climate change.

7

When things went sideways, I had 2 part time workers under me. I really didn’t need both of them, but the PTB thought I should have them. One of them quit because he wanted to collect unemployment, and the other one was hired out from under me by a different department. (Yes, I’m still mad and the jerk that did it will never be invited to another 4th of July party)

Due to the economic downturn, my company is looking at places to cut costs. I am going to lose at least 1 of those part time positions and the other one is likely to be cut to 10 hours per week.

I feel pretty confident that my part time positions aren’t the only positions that will be cut due to this.

8

With our high house prices, there are four or five tear down the house and rebuild projects within five blocks of me. All have been stopped. I hope they are being done by flippers and not the residents who’d be stuck in hotels weeks longer than they expected. That increases the cost of the project besides the impact on construction workers.
They just extended SIP here, but my reading of the order is that construction projects will be allowed to restart if done safely.

9

A friend of mine who teaches at the local community college said enrollment for Fall 2020 is down 30%. I’m sure a good percentage of those students are having greater than usual financial problems, and the interruption of their education may never be made up.

10

Tesla stock is up to $800 now (it was ~$900 just before COVID-19), while GM is still ~$24 (down from ~$35). So it seems not many investors share your view on auto makers.

11

True. But I’m not selling any other stocks to buy them right now. (No not shorting them either.) Are you?

It also must be noted that any disappointment GM, VW and the like, experience over their EV investments not paying off well, might be offset by being thrilled that big gas guzzling SUVs and trucks selling better than ever.

12

Yeah when it comes to our city’s income tax at least, it has to be voted on and the issue would give an explicit start and end date. They did it in 2008 to expire in 2013.

Fuel surcharges are going to be a state issue, passed by the state legislature. Ohio just did a gas tax and we didn’t vote on it.

13

I’ll look at some healthcare systems where I’ve lived. Our local hospital downhill in the little county seat is in Sutter Health, northern California’s biggest nonprofit chain, and so probably will survive. Our prior hospital in a larger but fire-swept county is in the huge Kaiser chain and so will likely survive. The public hospital in a small county seat on the Arizona-Sonora border will continue to serve the heavy ICE presence there.

But then I see the situation in Ft Bragg on the Mendocino coast, some hours north of San Francisco. It used to thrive on lumber and fishing; now it’s mostly tourism. When the lumber mill shut down, the local hospital was left bearing an obligation to treat ex-employees at no charge. The current drop in paying patients will likely shutter the facility. Will Sutter or Kaiser or Dignity (not a great chain) buy it for pennies? Or will its loss lead to collapse of tourist support?

Long-term, I see many marginal communities just drying up and blowing away. Remote coasts and slopes, and flyover zone hamlets, will lose life-support. Expect a Great Emptying. Towns with nearby (para)military facilities will survive. The rest? So long, it’s been good to know you.

14

Farmers are of course can’t wait and see how it plays out either. They have to decide now how to manage their acreage. The linked article puts it mildly.

15

Not Tesla, but I’ve bought some additional stock in alternative energy companies.

Do you really think the gas price will stay low as the country reopens and people start buying new cars again?

16

The macro read IMHO is no V shaped recovery. Nor any summer road trip season. I don’t see any quick uptick in demand just because some states go through a first or even second gate. Meanwhile everything that can store it is filled while production takes time to turn up and down. So supply won’t suddenly decrease to the same degree.

So fairly low? Yes I think so. I further think Russia will open up its spigots before the price makes U.S. production profitable again.

17

And there’s another distant effect: people don’t think about how gas prices could skyrocket down the line, when they buy those gas guzzlers. So they’ve now got this Ford Expedition or whatever… and all of a sudden that 50 dollar tank of gas costs 200…

(On the other hand, I imagine that someone purchasing a hybrid or EV is actually hoping that gas prices will go up in the future, so they get a sort of payback from the additional cost of the hybrid/EV engine).

18

Health insurance premiums could jump dramatically next year both due to higher medical spending as well as more young unemployed people choosing to go without insurance due to lack of money.

I personally think a lot of people will have to live with friends, family and roommates after this which will cause rental prices and housing costs to decline. But they’ll rebound eventually.

19

My daughter (a nurse) and her fiancé (an MD) are working long hours, but they are being fairly compensated. They’ve been renting a house, but realized they could easily afford to buy a nicer house.

They found the perfect home. It turned out the seller had purchased a home in another state when he had to move for work reasons in January and hasn’t had any luck selling his old house. My daughter made an insanely low offer, just to get the ball rolling. It was accepted and they are doing an expedited safe/virtual closing.

20

And the interruption to the whole institution is bad, too. I teach at a college that’s part of a state system. People in the state aren’t earning as much, nor paying as much sales tax —> less state tax revenue —> unanticipated cutbacks at public colleges, well beyond just the decline of student tuition revenues.