As the global economy hurtles into what may be the worst recession in generations, some models suggest Maine is especially vulnerable to dire economic consequences from the coronavirus pandemic.

One analysis puts Maine in the No. 1 spot among states likely to experience severe economic fallout from the pandemic because of its demographics and economic makeup. Another study ranks Maine sixth in the U.S. for highest share of “contact-intensive occupations” likely to be impacted in the transition to a low-touch economy dominated by social distancing requirements.

Why is Maine the most vulnerable? Here are the major factors that make Maine the most vulnerable among the 50 states to a severe negative economic impact from coronavirus: High percentage of older residents: They’re more likely to get severely ill and die.

Reliance on hospitality and tourism: People are suspending travel and social activities.

Reliance on retail trade: Retail will be hit hard by a reduction in discretionary spending.

Reliance on small businesses: They have less cash reserves and are more vulnerable to bankruptcy.

Reliance on self-employed: Many self-employed workers don’t earn wages when they self-isolate or contract the virus. Source: Oxford Economics

In a pandemic that requires minimizing social contact, Maine could be less resilient because so much of its economy relies on industries that require face-to-face contact compared with the country as a whole.

Related Vacationland threatened by coronavirus pandemic

Restaurants, hotels, shops and tourist attractions are among those most likely to suffer from a prolonged recession driven by continued social distancing. One in three jobs in the state is likely to be affected, according to Maine’s state economist.

Maine’s economy is also dominated by small businesses and self-employed workers that often lack cash reserves to weather a long downturn. With the oldest population in the U.S., Maine has a higher proportion of residents who are critical to consumer spending but also most vulnerable to severe illness or death from COVID-19.

Members of Maine’s Consensus Economic Forecasting Commission agree that the state’s economic mix could place it at a disadvantage coming into the recession.

“Bottom line, I think that Maine’s economy is a little more dependent on social interaction than the rest of the country,” said James Breece, an economist at the University of Maine in Orono.

The state’s food, beverage and hospitality industry is already hard-hit by forced closures and a stay-at-home order. The tourism industry faces an uncertain summer season.

Compared to the U.S. average, Maine’s economy is less reliant on industries such as manufacturing, science and technology, construction and professional services, which can insulate workers by modifying their work environments or allowing people to work from home.

“Those are in some sense the white-collar jobs who can work from home,” Breece said. “But we have less reliance on those people than other states. That could mean the recession would be more severe in Maine than other parts of the country.”

How severe the economic damage will be, and how long it will take to recover, ultimately depends on the public health response to the crisis and how businesses adapt.

“I would say that coronavirus is a human tragedy – it is taking a toll on the daily lives of all Mainers – that is the most important fact in this recession,” said Sheena Bunnell, a business and economics professor at the University of Maine at Farmington.

It will take declining cases, rigorous testing and treatment options to inspire the consumer confidence needed for recovery, she said.

“The biggest problem is that we have this massive public fear; consumers are wary, cautious and scared,” Bunnell said. “The weeks and months ahead will be very unpredictable, very volatile and very dynamic.”

In the past five weeks, more than 101,000 workers have filed for unemployment compensation, matching the total number of initial claims in the previous two and a half years. One in seven Maine workers has recently filed an unemployment claim.

The office of the Maine State Economist predicts the situation will become much worse before it gets better.

“Based on the state’s occupational structure, we estimate that about one in every three Maine workers is at risk of losing their jobs, becoming furloughed or having reduced hours due to the crisis,” analyst Angela Hallowell said.

Effects on the state’s public-facing businesses reach far and wide. Farmers who depend on selling to restaurants are struggling, and the state’s fishing, lobster and aquaculture industries face an uncertain future if restaurants remain closed. Services that count public businesses among their clients could lose out, too.

“Our economy is highly interconnected – losses in the restaurant and hotel industry will quickly have ripple effects through other industries,” Hallowell said.

A risk model produced by Oxford Economics, a global economic forecasting and analysis firm, places Maine at the top of the list for economic vulnerability among U.S. states. That analysis is based on Maine’s high percentage of small businesses, large elderly population and dependence on tourism and retail activity, among other factors.

“I think that we are going to see a quite severe drop in economic activity – it is just a question of how deep and how long-lasting it will be,” said Oxford Economics’ lead economist, Oren Klachkin. “Certain states are at higher risk of that happening.”

Related Read our complete coverage on the coronavirus pandemic

Maine has more than 147,000 small businesses with fewer than 100 employees each. Those companies employed 56 percent of the state’s private workforce in 2016, according to the U.S. Small Business Administration.

Small companies typically do not have the financial cushion large firms have to weather a downturn, Klatchkin said. Another issue is that Maine’s heavy dependence on retail sales is a warning sign when shops are closed to the public and people have less disposable income.

But his model is only meant to indicate vulnerability, not to predict how quickly or slowly a state can turn itself around following a pandemic, Klachkin added.

“The (study) is really meant to highlight risk, not meant to highlight when the state will come back to life once the shock fades,” he said.

Maine also has more workers than other states who are in “high contact-intensity” occupations, according to an analysis by the Federal Reserve Bank of St. Louis. About 23 percent of jobs in Maine – sixth-highest in the country – are vulnerable to layoffs because of a lack of demand or a heightened risk of infection if they stay at work, the bank reported.

But primary school teachers and nurses, considered high-contact occupations, are overrepresented in Maine’s labor market, said Julieta Yung, an economist at Bates College. Taxi drivers, waiters, dental assistants and hairstylists are underrepresented, she said.

“When looking behind the top-line numbers, Maine’s contact-intensive occupations in education and medicine are likely well-positioned during the medium-term slowdown of the economy generated by physical distancing policies,” Yung said.

But there is no guarantees for those jobs, either. Maine hospitals and other health care providers have canceled elective procedures and furloughed workers, and falling tax revenue could threaten local government jobs in a prolonged economic downturn.

Maine’s distinction as the oldest state in the nation likely will have an impact on its economic recovery. People over 55 years old account for 40 percent of consumer spending in the U.S., Yung said. If Maine begins to reopen while the virus is still circulating, older residents may opt to stay safe in isolation as much as possible.

“The fact that this important segment of the population may stay at home until we have a vaccine or better testing practices will have significant consequences for economic recovery,” Yung said.

Some Maine industries will remain resilient. The state’s growing biotech and health research sector, with global leaders such as The Jackson Laboratory in Bar Harbor and Idexx Laboratories Inc. in Westbrook, are positioned to develop testing and research during the pandemic, the economists said.

In other cases, small manufacturers may be able to retool to make personal protective equipment, and construction workers can still build, including road and bridge projects. The state’s fishing and agriculture industries could change business practices and customers to remain viable.

Related Owners of Maine small businesses cite shortfalls in coronavirus aid program

Resiliency also will depend on how agile and adaptable businesses are, said Hallowell, from the state economist’s office.

“Rather than seeing winning and losing sectors, we’re more likely to see individual winners and losers within sectors,” she said.

The length of Maine’s recovery period is likely to be dictated by the effectiveness of a public health response to coronavirus that gives the public confidence to return to relatively normal activities.

It took almost a decade for Maine to recover its job losses from the Great Recession, but that financial crisis tore at the heart of Maine’s economic structure, economist Chuck Lawton said.

This recession is different – it was caused by the response to an external threat, effectively putting large parts of the economy into hibernation but potentially ready to reopen quickly when it is safe, he said.

Policies such as the federal Paycheck Protection Program and extended unemployment benefits that keep businesses and workers on life support for the time being may make the difference between a six- to nine-month recovery and one that lasts 10 years, Lawton said.

“It seems to me that the economy is structurally not damaged, it is just that the disease pulled everybody back,” he said. “This is a temporary halt, almost like a hurricane.”

« Previous

Next »

filed under: