Maine’s economy this year promised robust growth and no recession in January, but two months later, the pandemic upended those expectations and the lives of thousands of workers and businesses.
The remainder of 2020 will be fraught with more economic pain and unpredictability, according to six Maine economists and business leaders. Factors include the federal stimulus uncertainty, ongoing pandemic, recession, November election, the regular flu season and cold weather that will force businesses that had expanded outside to move inside. Any one of those could further dampen or potentially buoy the economy.
“I think we are in for one large and deep recession, and we have not found the bottom,” Josh Broder, CEO of Tilson Technology and co-chair of the governor’s economic recovery panel, said.
But not all the news is bad. The Federal Reserve’s policies continue to underpin national and local economies. Chair Jerome Powell on Thursday announced a major policy shift that will let inflation run moderately above the Fed’s usual 2 percent goal for some time. That means the Fed will be less likely to raise near-zero interest rates, when the unemployment rate declines as long as inflation does not creep up.
By national comparisons, Maine’s virus and infection rates remain comparatively low, making it a safe spot for visitors and less likely the state will have to rescind business reopenings. Another plus for Maine is the strength of its community banks, which analysts said work closely with their customers in difficult times, including processing federal loans.
Near-term, the course of the pandemic remains the biggest challenge for Maine’s economy. The state needs to keep doing a good job of managing the pandemic response, but its economy is also affected by what happens in other states and countries, Amanda Rector, Maine state economist, said.
“Flare-ups of COVID-19 in other places can take a toll on Maine’s economy in terms of supply chains, demand for goods and services, and consumer and business confidence,” she said.
Pandemic-related harm to Maine’s economy began in mid-March — when Gov. Janet Mills declared a state of civil emergency to contain the virus — and then asked Mainers to stay home and businesses to close. By the time the state began to emerge from closures in early June, 236,000 jobless claims had been filed since March 15, according to the Maine Department of Labor. Even though initial jobless claims declined in data released last Thursday, 267,800 unemployment insurance claims have been filed and the state has paid out $1.4 billion in jobless benefits since mid-March.
Mills also charged the state’s economic forecasting panel to revise a rosy February outlook, with the July report saying the economy will slowly rebound over the next two years if new virus cases are effectively managed and more federal aid comes.
“Ultimately, the amount and duration of additional federal stimulus needed will hinge on the duration of the pandemic,” Bob Montgomery-Rice, president and CEO of Bangor Savings Bank and a member of the governor’s economic recovery panel, said.
Elements of a new stimulus package that Congress has debated, but not agreed on, include additional Paycheck Protection Program forgivable loans for businesses, a continuation of some bonus money for unemployed workers and possibly another check for Americans to prompt spending.
Broder, the Tilson CEO, agrees with the two-year rebound period. In its July report, the panel he co-chairs warned the governor that the damage the virus has caused in Maine “is widespread and has pushed many otherwise healthy Maine businesses to the brink.”
The panel had asked for $1.1 billion from the state’s existing federal stimulus money to stabilize the state’s economy. The governor recently allotted $200 million to small businesses and nonprofits affected by the virus. But the tourism panel had said more than four times that amount was needed to help the struggling hospitality and other industries.
Two former Congressional Budget Office chiefs recently predicted that without more federal aid, the economy will suffer a double-dip recession, where gross domestic product rises for a couple months and the economy appears to be on the mend, but then falls back into a recession.
Sheena Bunnell, professor of economics at the University of Maine at Farmington, expects the GDP to rebound in the July to September quarter because of the phased-in reopening of the economy in May and June and the expansional federal fiscal policies. Things could slow again in December with slow growth through 2022, she said.
“This pandemic shock has resulted in structural unemployment that the U.S. economy will have to deal with for a while,” Bunnell said.
Iris Stefan, chief investment officer at Camden National Bank’s wealth management arm, agreed. He does not expect a rapid recovery to pre-pandemic levels, nor does he expect another plunge in employment and output of the magnitude seen this past spring. Safely returning to school is a necessary component to a successful economic recovery, he added.
While consumer sentiment rose in June as the national and local economies began reopening, mounting cases in July nationwide and realizations that the economic recovery could drag on dampened confidence once more, according to a University of Michigan survey.
“Even if the pandemic ended tomorrow, we have not felt all of the impacts yet from the damage that has been done,” Broder said.
James Myall, policy analyst with the left-leaning Maine Center for Economic Policy in Augusta, said that like the Great Recession from 2007 and 2009 that took eight years to recover from, this one will have a “long tail.”
The governor has called for departments to ready sweeping spending cuts in case no more federal aid comes to shore up a state budget that is facing a projected $1.4 billion revenue shortfall over the next three years. Myall’s group has called for reversing past tax cuts on wealthier Mainers as an alternative to cuts.
The Maine economists agreed that the primary way to reassure Mainers that they will have a job and that their employers will continue in business will be a vaccine and more federal stimulus funds.
“Mass inoculation with an effective vaccine, not expected until sometime next year, coupled with a return to activities where social distancing is not an option, will be the crucial steps to unlocking steady economic growth,” Stefan said.