Long Island’s economy will not make a full recovery until a vaccine or effective treatment for the new coronavirus is found, and the longer that takes, the worse the toll will be, a spectrum of economists, academics and business people said.
With consumer spending driving 70% of American economic activity, Long Island’s small businesses — from shops and eateries to hotels and construction companies — are suffering from the shutdown of non-essential businesses to slow the spread of the deadly virus, economists said.
Many are making dramatic changes to adjust to the new way of living, such as restaurants offering deliveries instead of table service, real estate brokers giving online home tours and offices allowing employees to work remotely. But while those practices help lower the rate of new infections, they do not necessarily mean the Island's small businesses will survive the pandemic.
Even once more businesses are eventually permitted to re-open, consumers could be too frightened for their safety — or too strapped for cash — to make the major purchases that keep the economy moving. Small businesses, which make up more than 90% of local enterprises, lack the resources to sustain themselves for long without renewed consumer spending or more government support, and many could end up collapsing, economists said.
“It's the mom and pop shops, the small businesses, that are really the fabric of our economy, that have come to a total halt and they don't have that safety net,” said Herman Berliner, provost and professor of economics at Hofstra University.
Berliner said he is anticipating “the deepest recession since the Great Depression,” though he said this downturn will not last as long.
The best-case scenario is a V-shaped recession, with a sharp decline followed by a strong recovery, he said. But that depends on the development of a vaccine or treatment by this fall, which would allow the economy to recover within about a year, Berliner said. “That's optimistic,” he said. “I think it's possible. But it's a stretch.”
If it takes a year or two to bring the outbreak under control, the economic damage could last three to four years, Berliner predicted. And the downturn is having the most severe impact on lower-income workers, who are “living paycheck to paycheck … there is no cushion.”
If the outbreak lingers, he said, the government will need to provide more stimulus and other forms of support “to really limit the depth of the recession.”
Already, consumers are spooked.
New York’s consumer confidence has fallen to the lowest level in nearly a decade due to the outbreak and big drops in the stock markets, with pessimistic consumers outnumbering optimists, said Doug Lonnstrom, who oversees the Siena College Research Institute’s quarterly Index of Consumer Sentiment for New York State.
Consumer confidence “is a self-fulfilling prophecy,” said Lonnstrom, a professor of statistics and finance at Siena, north of Albany. “If consumers expect things to get good, they increase their spending and the economy is good. If consumers expect things to get bad, they cut back on spending and the economy is bad.”
The index for the metro area, including Long Island, was 64.8 points in the January-March period — the lowest point since November 2011. An index of 75 indicates an equal balance between consumers who are hopeful about their immediate financial future and those who see bad times ahead.
Lonnstrom said the economic downturn is more akin to the polio pandemic in the 1940s and 1950s than the 2007-09 financial crisis and Sept. 11, 2001, terrorist attacks. The life-threatening polio virus is highly contagious and leaves some victims paralyzed.
"Polio is the closest thing we have to this,” said Lonnstrom, who was born in 1937 and recalled the hospitalization of a high school friend who was placed in an iron lung to treat the disease.
“I can remember my mother saying to me in the summer, ‘You can’t go out and play. There’s a polio virus out there.’” Such fears, he said, “overshadowed everything.”
The 1955 rollout of Jonas Salk’s polio vaccine calmed those fears. Similarly, a coronavirus vaccine will eventually boost consumer confidence, he said.
“Consumer sentiment isn’t going to bounce back quickly. It’s going to come back in spurts, the same way the stock market recovers in stages,” Lonnstrom said. “It’s going to take more than one year. The key is going to be a vaccine. … When we find a vaccine for the coronavirus, I think you will see people just light up.”
It's not just New Yorkers who feel skittish. Across the country, consumers swung from heady optimism to pessimism after the pandemic hit.
The Manhattan-based Conference Board's monthly Consumer Confidence Index hit a 35-year high of 130 points in January 2020. It slipped to just under 119 in March. By April, the nationwide index was less than 87. A reading of 100 indicates an equal balance between optimists and pessimists.
The decline in consumer confidence in April was even more pronounced in New York State, said Lynn Franco, the board’s senior director of economic indicators.
Even so, consumers’ expectations about the economy and labor market rebounded a bit more recently, offering “a glimmer of hope because there is this anticipation that the restrictions [on nonessential] activities will be lifted, and the economy will gradually reopen,” Franco said.
Still, consumers are leery of making big-ticket purchases for cars, appliances and houses. People "want to see how the economy turns around, how their own financial situation turns around,” Franco said.
“We do expect a gradual improvement by year-end in terms of economic growth,” she said. “But until there is a treatment, there are certain activities that are unlikely to come back to where they were: travel, hotels, entertainment, restaurants, personal care services, nursing homes."
If there is a second outbreak, she said, “that could have a tremendous impact on confidence as well.”
The 1918 Spanish flu pandemic prompted some of the same restrictions being imposed now, such as closures of businesses and schools and prohibitions on large gatherings, which left some economic sectors "in a weakened state," said Nancy Tomes, a professor of history at Stony Brook University.
Even after such an epidemic passes, "you have the leftover fear," she said. "People are slow to come back into normal life, and I think that, again, is a parallel we’re seeing today." Once the economy re-opens, she said, "we can be told it’s safe to go out, but we’re still cautious because we’ve just been through this traumatic experience."
The randomness of the new coronavirus — which is hitting hardest among senior citizens and those with compromised immune systems, but also strikes young and formerly healthy people — has “a chilling effect,” said David L. Calone, a venture capitalist who lives in Setauket and is advising Suffolk County officials on support programs for small businesses.
For any businesses whose employees can work from home, he said, “I think they're going to continue to do so for the foreseeable future. You know, there's no prize for being the first company back in the office.”
The problem, he said, is that stores and restaurants not only are suffering from the current lack of consumer activity, but will also need to cope with new restrictions on crowds once the economy re-opens. Without crowds, some restaurants and other businesses “may lose money even staying open.”
Suffolk County officials are speaking with local communities about allowing restaurants to operate sidewalk tables that would permit more social distancing, he said. “Right now, many businesses are on life support,” he said. Some, he said, “have the ability to go maybe a month or so without revenue, but to go much beyond that, most people don't have that kind of reserves.”
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