The economic contraction caused by the COVID-19 pandemic and the policies to help mitigate it is the most extreme we have seen in recent history. As part of the Kentucky Chamber’s “Restart Kentucky” initiative, Kentucky economist Paul Coomes told business leaders across the state Thursday the longer the shutdown goes on, the worse the economic recession will be for the state.
Coomes, an economic consultant and professor at the University of Louisville, said through the first five to six weeks of the pandemic, Kentucky has flattened its curve through social distancing and stay at home orders from the government. Coomes pointed to data in his presentation citing no surge at local hospitals and fewer reported cases and deaths than forecasted, with most of the deaths largely isolated to certain populations, such as nursing homes and prisons.
Meanwhile, some of the extreme policies are opening the door to enormous financial consequences, citing overly generous unemployment insurance benefits as a main concern that will need to be addressed in the coming weeks.
Coomes guestimates that Kentucky will see large economic losses over two months including a 588,066 decline in employment and lost employee compensation across all sectors totaling more than $3.2 billion (see image to the left and hear Coomes discuss the data starting at 16:30 in the video below).
Kentucky employers and employees responded at one of the highest rates in the U.S. when it comes to unemployment insurance claims, with 20 percent of Kentucky’s workforce filing in the last month. Coomes noted the state is seeing an inflow of $2.7 billion in federal dollars over two months following passage of federal legislation that adds an additional $600 per week to unemployment benefits.
Coomes said because the state pays, on average, about $350 a week and with the additional $600 from the federal government, this is a higher pay than most people working in the most impacted industries were making. This, he said, will make it difficult for many businesses hit hard by this crisis to get employees back to work even when it is safe.
The cost to the state and Kentucky employers is also a concern, according to Coomes. He stated the state’s Unemployment Trust Fund, which is funded through payments by employers, recently had a balance of $619 million. For 12 weeks of benefits at the current rate, it will cost the state $1.6 billion. He said while the federal government funding will help with this, the spending will impact all Kentucky businesses for years to come, not just the ones who have laid-off employees.
As for the federal stimulus coming into the bank accounts of individuals across the country, Coomes expressed concerns about the money actually stimulating the economy because history shows most people either save that money or pay down debt. He predicted the country could see an increase in home redesigns as they are spending more time than ever in their homes and that could help stimulate the economy.
Overall, Coomes said Kentucky is seeing unprecedented amounts of federal funding coming into the state with more than $14 billion over two months from unemployment insurance funding, individual stimulus checks, and small business loans.
As for what this means for the economy overall, Coomes said he believes the country could have been okay with just a single month shutdown, but since it has extended past that and will likely be lasting much longer, it is likely impossible to avoid a deep economic recession.
Watch the full discussion on the “Restart Kentucky” webinar here: