Most U.S. states are starting to ease coronavirus restrictions in order to get the economy back up and running financially. If you are concerned (or just curious) of how quickly the recovery might be in your city from the coronavirus pandemic and the recession caused by the shutdowns, then a new report may give you some idea.
Coronavirus recovery depends on 2 factors
This latest report comes from Moody’s Analytics, which studied the top 100 U.S. metro areas to determine the capability of coronavirus recovery in these cities, according to Yahoo News. It primarily considered two factors - population density and educational attainment. Though educational attainment is a crucial factor, the report says that economic recovery depends heavily on the city’s population density.
Jim O’Shaughnessy: Fear Signals Created By The Reptilian Brain
ValueWalk's Raul Panganiban interviews Jim O’Shaughnessy, Chairman, Co-chief Investment Officer, and Portfolio Manager at O’Shaughnessy Asset Management. In this part, Jim discusses the fear and emotional signals created by the reptilian brain. Q1 2020 hedge fund letters, conferences and more That's very cool. For the factor to try to seek the reason why it works, Read More
“A key difference between this recovery and the last recovery is the population density,” the report says. “It's going to have a different effect this time than it did last time.”
During the great depression, it was the densely populated global cities that were the first to get out of the crisis. However, the case would be different this time as densely populated cities would be regarded as inherently risky.
As can be expected, the densely populated areas are prone to infection post-shutdown. Also, cities such as Las Vegas that rely on tourism are more prone to economic hardships due to the pandemic.
The report identified San Jose and Durham, as well as Washington D.C.; Austin, Texas; Seattle; and Minneapolis among the cities with the best coronavirus recovery conditions. In comparison, Honolulu, Hawaii; Las Vegas, Nevada; and Miami, Florida may struggle with the recovery, the report says.
“The most dynamic recoveries may well bypass traditional powerhouses and take place instead in areas that [weren’t] poised to lead the way in 2020 before everything changed,” the report says.
Cities poised to recover quickly
According to Moody's, the city with the perfect combination for recovery is Durham, North Carolina. The city has a low population density and its economy is built around a massive university (Duke).
Other isolated cities that are expected to recover well are Des Moines, Iowa, and Omaha, Nebraska.
“They're not places that you think of as sort of prestigious economies — they're somewhat isolated in terms of where they are relative to the rest of the U.S.,” the report said.
As per the report, these cities have a robust financial services sector, as well as educated population when compared to the surrounding regions. The report says that several east coast cities are not expected to recover as well as others, except for Washington D.C., which is poised well for recovery.
Talking of cities that receive heavy tourism, the report says the recovery path would be the hardest for New York, Miami and Las Vegas. As per the report, NYC’s biggest asset is the “large, skilled workforce” that is “drawn to the fast-paced and highly interactive nature of life,” but activities such as “riding the subway, dining in crowded restaurants, and attending Broadway shows” would be seen as risky for some time.
Las Vegas is a tourist hotspot and thus, is “almost completely shuttered” currently. Moreover, the city is not expected to recover until there are restrictions lifted on leisure travel and business travel.
Long-term impact: out-migration possible
Talking about the long-term impact of the coronavirus pandemic and recession on the living pattern, the report says that the next generation would start to prefer the metro areas having less population density. The generation growing up today would have fresh in their minds the impact of the coronavirus. Thus, they would likely opt for cities with less dense populations, the report says.
Answering if such out-migration would create financial pressure on some states and cities, eventually forcing them to a bankruptcy route, the report says it is too early to tell, but there will be signs to watch for.
“What we would be looking for would be states where the impact is going to be very severe,” report says.
According to the experts, the U.S. economy will start to recover in the second half of the year. However, growth is expected to be slow and uneven. More than 33 million people have already filed for unemployment benefits over the past few weeks. For the second quarter, economists expect a sharp contraction in the GDP.
"I think we have to prepare for a more gradual recovery while we hope for that quicker rebound," Minneapolis Federal Reserve Bank President Neel Kashkari said last week.
Even though the states are rolling back the strict stay-at-home measures, Kashkari says the social distancing measures will continue to impact the businesses until a vaccine for COVID-19 comes out and is made widely available.
Giving an example of restaurants, Kashkari says even if some businesses adapt to the social distancing guidelines, lack of customers would continue to create cash flow issues for them. Restaurants have proposed seating customers at every other table.