It Could Take Years To Understand Effect Of COVID Lockdowns

While Republicans and those in sectors hardest hit during the pandemic have criticized the state’s coronavirus-related restrictions as crippling to the state’s economy and leaving it worse off than its neighbors in the Great Lakes region, experts said it could take years to fully realize their effects.

It’s hard to tell if the economic impacts are from COVID-19 restrictions or the virus itself, some economists said, while noting Michigan is actually not far off from surrounding states when measured by a more reflective metric of economic health, such as unemployment levels. Additionally, while the restrictions implemented by Governor Gretchen Whitmer might have influenced the economy, what that effect is will not be truly known until years from now.

Even then, economists say the ability to assign blame to one cause over the other will be difficult due to how enmeshed they are with one another.

Still, that can be tough to square for some sectors of the economy more disproportionately impacted either by the state’s shutdown orders or the fact that people are simply less likely to interact with sectors that thrive in congregate settings over fear of contracting COVID-19. Those include places where people gather in groups, like restaurants, movie theatres, theme parks and other entertainment venues.

Looking at Michigan solely from the prospective of restaurant openings and closures – then comparing that to states in the surrounding area, such as Ohio, Indiana, Wisconsin and Illinois – Michigan would appear to have done worse than its neighbors when considering recent data from the National Restaurant Association.

As noted in a survey circulated in February, restaurant business sales were down nationwide by 26 percent overall between January 2020 and January 2021. Specific to Michigan, sales were down by 57 percent during that same period and 93 percent of restaurant operators said their total dollar sales volume in January 2021 was lower than the year prior.

When compared to Indiana, Ohio and Wisconsin, those states reported year-over-year sale declines by 34 percent, 27 percent and 30 percent, respectively. Illinois did not submit data to the association for comparison.

Michigan Restaurant and Lodging Association President and CEO Justin Winslow said that to his knowledge 3,000 restaurants have closed in-state since the onset of the pandemic, and he believes more likely closed.

“I don’t see how you come to that conclusion as it pertains to this industry,” Mr. Winslow said of the idea Michigan was no worse off economically due to lockdowns. “I think that the data is pretty clear, which suggests that we – as restaurants and hotels – experienced the fallout significantly worse than our peers in the Great Lakes states.”

While he acknowledged that some sectors of the economy could have better weathered the shutdown orders, Mr. Winslow said he did not believe their successes should shroud how tough it’s been on other sectors of the economy.

Daniil Manaekov, lead research area specialist with the University of Michigan’s Research Seminar in Quantitative Economics, said that he and other economists have been careful to not take an outright stance on the impact of the shutdowns versus the naked effect of the virus due to the two being “very, very hard to disentangle.”

“It’s definitely a mix of the two, but saying exactly what percentage is due to shutdown orders and what part is due to the virus – quite frankly, that question is never going to get settled,” he said. “In general, economics … has been fairly political since the dawn of time and it’s not going to change. So, at this point, I think there is a wealth of research and it’s often very contradictory in terms of what these orders have done.”

Due to the politicization of the field, Mr. Manaekov said that it would not be hard for someone “shopping for an explanation” to be able to find a paper or study supporting the viewpoint they want to push. However, these studies should be taken with at least a moderate dose of skepticism considering the wider berth of literature in the field is pointing to the answer being mostly inconclusive – possibly in perpetuity.

Backing him on this idea was his colleague Gabriel Ehrlich, RSQE director and economic forecaster. Much like Mr. Manaekov, Mr. Ehrlich said that the guiding belief is that the recovery for the economy currently will be K-shaped: lower wage, and more person-to-person contact industries will be slower to economically recover due to their inability to adapt to distance working while those sectors that can, will. And because of that, they will recover faster.

Mr. Manaekov underscored that point by emphasizing that it is “basically going to be impossible to tell what happened maybe until years from now” regarding how much of that recovery is due to lockdowns versus the virus’s effect.

“There’s a saying in science: The idea for points of view do not get defeated in scientific debate, the people who are trying to settle these ideas slowly retire,” he said. “That’s how it’s probably going to go. So, in 50 years we’re probably going to know what these things did.”

But for now, one of the broadest metrics to determine a shutdown’s effect would be unemployment, Mr. Manaekov said. During the beginning of the pandemic, when states across the country began grinding all activities to a halt to mitigate viral spread, unemployment spiked across the Great Lakes region in a way that was relative between states.

However, he said, it is his belief that the decision to also stop production from the auto sector may have disproportionately hurt Michigan out of the gate – though it was not a sustained hurt. While Michigan’s unemployment numbers were relatively high around April 2020, at one point clocking in at 23.6 percent, by June, Mr. Manaekov said, Michigan’s unemployment became relative to its neighbors.

Mr. Ehrlich added that it was also possible that Michigan’s nice weather during this same time also played a factor – people wanted to be outside, were possibly off work and maybe not taking the virus as seriously as they should have been, so the virus hit the state hard and further disrupted the workforce.

Mr. Manaekov pointed to the trajectory of unemployment rates in the Great Lakes region after the first lockdown ended in June, charting that movement until March 2021. Between all of the states in this part of the country, there was – at most – a two to three percentage point difference in unemployment between the most and least locked down states, with Michigan resting toward the higher end.

Recent U.S. Bureau of Labor Statistics data backs up this claim. As of December 2020, Wisconsin – which was looser in regard to restrictions – noted a 5.5 percent unemployment rate compared to Michigan’s 7.5 percent. In December, Michigan’s restaurants were all closed for indoor dining.

For the rest of the Great Lakes region, Illinois saw a 7.6 percent unemployment rate as of December 2020, Ohio a 5.5 percent rate and Indiana a 4.3 percent rate making the variance and effect of a lockdown versus limited restrictions relatively narrow in difference. And even with Michigan being at the higher end of the unemployment scale relative to the others, Mr. Manaekov said that could be due in part to the restrictions that took effect in November.

By February, those same unemployment numbers – the most recent available – brought Michigan’s levels even closer to its neighbors, as suggested with the following unemployment percentage rates: Wisconsin at 3.8 percent, Indiana at 4 percent, Ohio at 5 percent, Michigan at 5.2 percent and Illinois at 7.4 percent.

“It’s basically a fairly narrow band for states that had quite different timelines of restrictions,” Mr. Manaekov said. “So, in that sense, restrictions may have had – early on – may have contributed to the (unemployment) spike in the spring … that explains the run up in Michigan, relative to the Great Lakes region. But since June and July, we are within a band of what’s happening in the rest of the Great Lakes region.”

Republicans in the Legislature have not been particularly shy about pointing to the data on restaurants as being indicative of the greater economy and linking that industry’s poor reaction to the lockdowns as proof lockdowns as a whole were bad for the state.

Additionally, those opposing the state’s COVID-19 strategy have often said Michigan’s restrictions were among the strictest in the nation.

Rep. Thomas Albert and Sen. Jim Stamas, chairs of their respective appropriations committees, did not respond to requests for comment on this story.

Rick Baker, Grand Rapids Chamber of Commerce president and CEO, said he believes the best way to address this issue moving forward could be to tie vaccination metrics to state industry opening metrics: The higher the vaccination rate, the more businesses should be able to open.

While it would not be right to require people to become vaccinated, nor should the state drag its feet on reopening the economy should national vaccine distribution lag, Mr. Baker said state health officials could use vaccination percentage rates to create a reopening plan that would allow for everyone to be on the same page. This includes the Legislature, which he said has not been involved since the beginning in Ms. Whitmer’s pandemic attack plan.

He does believe that there is some truth to the idea that shutdowns hurt the economy. Much like Mr. Winslow, Mr. Baker said there clearly has been a negative effect on certain industries like hospitality and lodging, but that this effect has rippled across the state, affecting multiple sectors, leading one to conclude that shutdowns have hurt Michigan’s overall economy.

Speaking anecdotally, Mr. Baker noted that the closure of restaurants and event halls aren’t just occurring in a vacuum. In some cases, restaurant closures can affect an entire downtown area, much like event spaces, leading groups that would otherwise utilize their services being forced to take their business elsewhere – sometimes, even over state lines.

Mr. Winslow also said that with restaurants having been closed for 159-non-consecutive days due to lockdowns, it’s hard not to believe that the shutdowns did have an effect on the economy from MRLA’s perspective.

Specific to shutdowns, Mr. Baker added that if restaurants were given the opportunity to stay open throughout the pandemic – putting the onus of safety on patrons, choosing to weigh the importance of their own health versus want to dine out – food establishments could still make some income.

Under shutdowns, should takeout not be doable, the ability of making any income falls to zero.

Still, it is a thin rope to walk, balancing health and safety of patrons with the need for businesses to stay afloat to take care of its own staff. Mr. Winslow and Mr. Baker seemed confident that Michigan’s restaurateurs and other business owners could do it.

Mr. Winslow, however, also acknowledged that even if Michigan had taken a different path to tackle the pandemic: “No one state got it right.”

Nevertheless, outside of specific industries which cannot adapt to remote work, Mr. Ehrlich said most sectors are now back to functioning as close to normal as they can. And, due to the fact the country had a fundamentally healthy economy prior to the pandemic, it stands to reason that once the health crisis is tackled, it can return to that same pre-pandemic normal as well.

He used the Great Recession as an example; prior to its onset, the economy was already unbalanced which meant an economic recovery would be even harder to accomplish. With the current economy’s previous health prior to COVID-19, Mr. Ehrlich said that some may be surprised at the quickness of its recovery to pre-pandemic levels.

By his estimation, Michigan is likely to see employment take a while to return to pre-pandemic effectiveness but that a fast increase is expected due to the state climbing out of a large hole. The payroll employment level in Michigan is expected to return to end-of-2019 levels by the end of 2023. By the end of 2022, the state is expected to be only 2 percent down from pre-2020 levels.

Personal income, too, has already recovered, he said, though largely thanks to the federal support. That number is an aggregate, however, and Mr. Ehrlich was careful to say that some could have slipped through the social cracks in getting back to pre-pandemic economic stability relative to their situation and that it was important not to downplay those individuals.

The state’s continued recovery is, however, contingent on continued vaccination efforts Mr. Ehrlich said. If the state fails to get the health crisis under control, it will not be able to return the economy to normal either.

“The vaccine is far and away the most important thing, at this point,” he said. “The economy is not going to get back to normal until the public health situation is under control.”