Photography by Jamison Mosley
Arkansas is facing a deeply challenging year for the economy with the coronavirus pandemic negatively impacting nearly every sector, leading to large numbers of layoffs, major declines in state tax revenues, huge disruption (especially for small businesses), slowdowns in manufacturing and declines in consumer spending.
“It appears that a dramatic downturn in economic activity over the remainder of 2020 is unavoidable for the nation and for Arkansas,” said Chief Economist and State Economic Forecaster Michael Pakko of the Arkansas Economic Development Institute at the University of Arkansas Little Rock. “As the impact of COVID-19 works its way through the economy, national economic forecasts are showing an increasingly grim outlook. In addition to disruption of world supply chains, the decline in consumer spending associated with ‘social distancing’ is generating forecasts with significant declines in aggregate demand that make a recession appear inevitable.”
The model Pakko was working with assumes that with social distancing, by August the virus spread in Arkansas should be dwindling and recommendations for quarantining lifted.
“If it takes longer for the virus to subside, it will impact the downturn,” Pakko said. “People hope it will be as brief in duration as possible. But even with the best-case scenario, it will take some time to get things back to normal.”
Pakko said there is a great deal of uncertainty associated with any forecast of the current, unprecedented situation. He said the presumed scenario where economic recovery begins by the end of 2020 might prove to be overly optimistic.
“The declines in consumer spending and income may reinforce one another to create an even more dramatic downturn,” Pakko said. “The outlook will undoubtedly change as the situation develops, particularly when it comes to the impact of fiscal and monetary policy responses.”
Bill Sowell, CEO of investment advisory firm Sowell Management in North Little Rock, thinks Arkansas is positioned to withstand the economic challenges better than most states.
“Arkansas has been faring pretty well in sheer numbers of confirmed cases and based on our rural nature, it appears we may dodge the bullet as compared to other large metropolitan areas,” he said. “We also benefit from a diverse economy, particularly the vast amounts of agricultural products, and the fact that 36 percent of our state is farmland.”
But Chancellor Cam Patterson of the University of Arkansas for Medical Sciences said he remains concerned about the financial impact of COVID-19 on the institution, as well as on the smaller rural hospitals and clinics across the state.
“Our clinic visits declined, but some of that is attributable to the fact that we have postponed elective procedures,” Patterson said. “We knew when we made the decision to put off those surgeries that it would affect our bottom line, but it is the right thing to do to protect our patients. We have a robust telemedicine program in a variety of specialties through our Institute for Digital Health & Innovation. We are in the process of expanding our use of telemedicine even more to reach people in every corner of the state and provide help and comfort to as many as we can during this trying time.”
Help on the way for small business
In late March, Congress passed a $2 trillion stimulus bill with provisions to help individuals, small businesses and hard-hit industries such as the airlines. It couldn’t have come too soon for the thousands of people out of work and large numbers of small businesses that have been forced to shut or have seen reduced sales.
“It’s a pretty serious challenge depending on the sector of economy or the type of business you own or operate,” said Randy Zook, president and CEO, Arkansas Chamber of Commerce. “The hardest hit sectors so far are food service, transportation, airlines, restaurants and hotels. Anyone involved in the travel business has been hit really hard. That is where the very early surge in unemployment claims is coming from.”
So far, other sectors not operating normally, but close to normal, include food distribution, groceries and trucking companies delivering materials for consumption. Due to panic buying at supermarkets, trucking firms involved in food distribution may be busier than normal. Online grocery ordering from Walmart has soared with the company hiring thousands more workers to meet the demand.
Arkansas has a lot of federal, state and local governmental employees.
“Most of them are operating at maximum capacity to try to meet the demand of citizens, especially those at the Arkansas Department of Workforce Services, which administers unemployment services,” Zook said. “The agri sector, a huge part of Arkansas, including the processing industry, is in various states of being affected, especially poultry processing plants like the Tysons, Simmons, George’s of the world, which have done herculean things to try to maintain their operations to be able to provide food for the public. Hats off to all those companies. People have to eat. They have adopted rigorous standards for getting into plants, but people are still working in the plants.”
Tyson Foods and others in the poultry industry have also donated a large amount of chicken to food banks. Food banks are seeing a major surge in demand because of high unemployment.
Even clinics have been adversely affected as patients stay away in droves out of fear of being exposed to the coronavirus. And while a lot of people could be employed making N95 masks, Zook said that is a major challenge because of the lack of raw materials from which to make the masks.
“All of this is finely tuned,” he said.
One bright spot in the N95 mask situation is community colleges and high schools with health-education programs have been shipping their supplies of N95 masks to hospitals. Northwest Arkansas Community College, for example, provided 12,000 masks and 9,100 pairs of gloves.
Zook said the state is fortunate to have a well-stocked unemployment insurance trust fund, which is the fastest way to get cash into the hands of employees. But for small businesses, which have been dramatically affected, there are still loans, rent, utilities and insurance to pay even if the employees have been laid off. There is hope that the stimulus act will provide enough support to get small businesses through the crisis.
“For business people having problems, my best advice is to talk to bankers and the Small Business Administration and do everything you can to get the paperwork in hand for when these programs come into place. Be prepared to tough it out until you can get your hands on some cash as we get the economy to something that looks like normal.”
A lot of people have figured out how to work at home. That is true across the world. Zook predicts that this trend will change things long term.
Some internet-service providers have increased the speed of the service provided without raising rates. And nearly all the utilities in the state have announced they will not disconnect services for lack of payment.
But many small businesses are struggling. Gary Taylor, owner of Little Rock’s Go! Running, had to cut store hours drastically. Though he launched a new online store, actual store hours were reduced to noon to 4 p.m. Most sales three weeks into the pandemic had been curbside pick-up.
“The few folks we get [in store] are on a mission to get what they need and leave, so no browsing for other items,” he said.
The length of the semi-shutdown could determine whether many small businesses survive the pandemic.
“We are doing as much as we can. Wiping down door handles constantly, soap and sanitizer for everyone, keeping a distance and so on,” Taylor said. “Then, obviously, with the reduction in customers comes the reduction in cash flow. Some of our business partners are being gracious about due dates, etc., but it’s a hard time. The tough part is going to be how long this lasts. And then just changing how we do business to fit the current environment. We were leaders with in-town delivery to our customers. I think we had that going as soon as there was a call to stay home.”
Zook said it is hard to know how long the disruption will last.
“It may take a while, but we will get this under control,” Zook said. “A lot of good, smart people are working awfully hard to figure out what needs to be done and get it done.”