An Indiana economist hopes his expectations about the state’s economic activity in the first quarter of 2021 are wrong.
Michael Hicks, a professor of economics and director of the Center for Business and Economic Research at Ball State University, said, “I hope I’m wrong, but I think it’s a tough forecast.
“As we all know, 2020 has been a very bad year. In terms of total GDP decline, it’s probably not as bad as 2009. But for the heavily affected sectors — accommodations and food services, arts and recreation — we’re talking a 15% to 20% decline in economic activity this year. And that will continue into first and second quarter of next year in those most hard-hit sectors, simply because COVID-19 is not going away. In fact, the evidence is that it’s getting worse.”
Hicks did praise the state’s food service industry for what he sees as its ongoing creativity when it comes to getting people to continue buying its products despite the many roadblocks COVID-19 has thrown in its path.
“They’ve become far more efficient at their drive-through lines, traditional sit-down restaurants have offerings that are easier to carry out, etc. So, they’ve done a very good job at responding to the situation,” Hicks said. “Unfortunately, there’s just nothing you can do if you’re in a sector where the real purpose of being there is close, face-to-face interaction with other people. So, a bar, for example. Those places have really struggled because of, one, peoples’ reluctance to enter them, and two, some of the social distancing guidelines may have contributed to that.”
It’s a struggle Kristin Craig, president of the Terre Haute Chamber of Commerce in central Indiana, is acutely aware of.
“Like most areas around the state, I would say our restaurants and bars obviously have been some of the hardest hit in our area, followed closely behind by small businesses, of course. It has undeniably been an incredibly tough year for all of them,” she said of the situation. “I think throughout all of this, we have stayed in pretty close contact with a lot of our industries, and Terre Haute does have quite a bit of manufacturing. So, that’s one area we’ve been plugged into, and our manufacturers have been chugging along. They’re hanging in there. They haven’t had a lot of stops, or supply shortages, or supply chain issues, things like that.”
RV, PLUMBING FIXTURE INDUSTRIES STRONG
Chris Stager, president of the Economic Development Corp. of Elkhart County in northern Indiana, noted that the county’s RV industry — one of its largest employers — seems poised to have a particularly strong showing heading into the new year, given the circumstances.
“I can tell you that Elkhart County, generally speaking, I think is probably faring better than some of the other economies nationally. Our RV sector has been very busy, despite COVID restrictions, and their projections into next year are a roughly 10% to 12% volume increase over this year,” Stager said. “So, certainly that’s good from a development perspective. After we got through the first three to four months of the COVID phenomenon, I think the industry adapted, and I think they’ve done a really good job locally to make sure that the workplaces are safe, and secure.”
That industry received good news this week when the RV Industry Association released its 2021 forecast that predicts an 18% gain in shipments to dealers, outpacing the earlier predictions that Stager mentioned. The RVIA estimates 502,582 units will be shipped in 2021.
The RV industry has bounced back strong this year after shutting down for nearly two months during the spring when Gov. Eric Holcomb closed portions of the economy in an attempt to control the COVID-19 virus.
Jose Rodriguez, administrative manager of the RV/MH Hall of Fame in Elkhart County, stated the rebound is due primarily to families wanting to travel and enjoy time together safely by utilizing recreational vehicles.
“These last couple of months, we’ve had record shipments in the RV industry, again, more than ever now, because people want to be away from other people,” Rodriguez said. “The RV is a perfect tool to be able to enjoy a vacation, and still have all the amenities you need. So, it’s a tough time, but we’ve definitely been able to have an important impact, just because of how convenient it is to be in an RV, and be away from people.”
In southern Indiana, Jeff Emsweller, executive director of the Greensburg/Decatur County Chamber of Commerce, said he’s seeing a similarly strong showing from the manufacturing sector in his area of the state — one he’s hopeful will continue into 2021.
“We have a company here in Greensburg, Delta Faucet, that produces faucets, shower heads, things like that. And while people were laid off from work, or couldn’t go to work, and things were shut down across the state and across the country, what they were doing was they were remodeling their homes while they were stuck at home. So, the orders for faucets, and shower heads, and the items that Delta Faucet produces, they just skyrocketed,” Emsweller said. “Places like Lowes, where they distribute, those places were demanding products. They didn’t have any choice. They had to be open or they stood the chance of potentially losing their contract, which thank goodness they didn’t. So, they’re still going strong.”
He said the same holds true for a number of Decatur County’s other manufacturing operations, including the county’s Honda plant — its largest employer.
“They employ about 3,000 people,” he said of the plant. “They were shut down for a little while, but their demand has gone back up. They are back to fully staffed, and operating very well out of there.”
But like his colleague up in Terre Haute, Emsweller said it’s the bars, restaurants and small businesses in Greensburg/Decatur County that have taken the brunt of the fallout surrounding COVID-19.
“Our county was hit particularly hard early on in the very first part of the year. We were one of the few counties in the state that actually went to shutting things down prior to any other counties,” Emsweller said of COVID-19’s arrival. “Now, as of Nov. 20, we’re back at red level with our restrictions because of COVID’s resurgence, which means our stores, our restaurants, our bars, they’re limited again on who they can serve because of the new red-level guidelines. So, we’ve got some restaurants and some bars up here that are really making a big deal about it. For example, with us now having to close at 11 p.m., because that’s the curfew here, they’re struggling. So, they’re trying to figure out how to open earlier, and convince people to come in a little bit earlier. It’s been tough.”
VACCINE MAY HELP
And according to Hicks, it looks like things are only going to get tougher for many such businesses as the state turns the corner into 2021.
“Regardless of what the state does in the next weeks in terms of shutdown, we’re going to face a significantly lower level of spending and economic activity in those sectors than we saw even a month or six weeks ago,” Hicks said. “And I don’t want to call it a double-dip recession, because I don’t think we ever really got out of recession, but it’s certainly a downturn that’s going to look more like late spring, early summer than the type of recovery that we had hoped for at this point.”
While that economic outlook may not be the rosiest, Hicks noted that there is one major variable — an effective COVID-19 vaccine — that if approved and disseminated, could play a major role in helping to turn the state’s economy around by early- to mid-2021.
“Dr. Anthony Fauci says he anticipates widespread availability of the vaccine within the March, April, May timeframe. So, the implication from that is that we will be at a protected level of vaccination by the end of second quarter,” Hicks said. “If that is correct, then you would anticipate households doing sort of two things. One is, they’re more likely to resume the pre-pandemic level of activity at restaurants and bars. And then the second thing is, there has been a very large spike in household savings in the months following COVID’s arrival. The nature of the disease meant that many of the things that we had sort of spent our money on before were no longer priorities. And so, most households that have remained employed, which is the vast majority of households, are financially better off now than they were at the beginning of the pandemic.”
Given that renewed freedom to venture out and return to some sense of normalcy, Hicks said it only follows that such freedom will in turn result in a big influx of spending from the state’s consumers.
“So, I would see people returning to their previous activities, but then there’s also this big glut of savings that could be spent on bigger vacations, celebratory meals, things like that,” Hicks said. “The pent-up demand from the downturn is fairly significant, and I would anticipate it continuing through the rest of 2021. So, I’m predicting a bad first half of the year, but then a really good second half of 2021 will balance it out to being, in Indiana, probably about an average year. It’s just not going to start out looking that way.”