By Carson Gorecki
January 2021
Link to Tableau visualization: public.tableau.com/profile/magda.olson#!/vizhome/MinnesotaRecessionsComparison/Unadjusted
The COVID-19 crisis has impacted the national and local economies in unprecedented ways. The uniqueness of the current economic downturn is perhaps best illustrated through a comparison with previous recessions. The last economic crisis associated with a pandemic – the Spanish Influenza – coincided with the end of World War I in 1918, complicating any correlation with effects on economies. The tools and resources we have today which allow us to track the workforce in detail were not available to early 20th century economists.
Recessions, defined by the National Bureau of Economic Research (NBER) as "a significant decline in economic activity… lasting more than two quarters", typically occur after periods of sustained economic expansion. After a record 128 months of expansion, the NBER officially labeled the COVID-19 economic crisis a recession that began in February 2020 (www.nber.org/news/business-cycle-dating-committee-announcement-june-8-2020). Two of the widest-used indicators of economic activity are gross domestic product (GDP) and employment. This article uses the latter to compare the current recession to the two preceding downturns in 2001-2004 and 2008-2010 in the Duluth area. While recessions are economy-wide, the impacts experienced in local economies such as the Duluth-Superior Metropolitan Statistical Area (MSA) can differ significantly.
The Duluth MSA, which consists of Carlton and St. Louis Counties in Minnesota and Douglas County in Wisconsin has indeed felt the effects of the COVID-19 crisis. According to Current Employment Statistics, seasonally adjusted Total Nonfarm employment in the Duluth metro area declined 13.5% in the first two months of the pandemic. This initial and sudden decline in employment was followed by four months of what – under normal circumstances – would be considered strong employment growth at 5.4%. What at first appeared to be a robust bounce-back, however, has since stalled. Since April, 6,300 or 34.2% of the 18,400 jobs lost initially have been regained. The extreme fluctuations in employment in the first four to six months of the COVID-19 crisis are unmatched in previous recessions (see Figure 1).
Recessions and their subsequent recoveries are often described and categorized by their shapes. A V-shaped recession involves an initial steep contraction followed by a correspondingly steep recovery. A U-shaped recovery on the other hand, describes a longer decline and recovery. So far, the shape of the current recession looks like a backwards square root symbol (√). The shape of the employment trend in the COVID-19 crisis underlines its uniqueness. Put simply, the current economic downturn has no historical equivalent, nationally or locally.
A comparison of the employment trends in the three most recent recessions shows in more detail how the current COVID-19 crisis differs from the previous two economic downturns in the Duluth Metro. Plotting the course of employment change of the last three recessions on the same graph shows certain distinctions clearly evident. First, the recession in 2001-2004 and the Great Recession of 2008-2010 saw much smaller peak employment losses. The 2001-2004 recession hit a maximum year-over-year seasonally adjusted employment loss of 2.5% and the Great Recession at its nadir was 4.8% off the previous year's employment level. The losses in the current crisis were much more severe. An initial over-the-year employment decline of 14.0% in April 2020 was almost three times as severe as the low point of the Great Recession and more than five times greater than the peak employment losses of 2001-2004 (see Figure 1).
The employment losses in the current recession have also been much more sudden. Only two months elapsed between the peak of the employment expansion in February to the low point of employment in April. The low point of employment in the 2001-2004 downturn occurred in November 2003, 28 months in. Likewise, employment in the Duluth MSA did not reach its nadir during the Great Recession until 17 months in, in September 2009.
Since August 2020, the rate of employment growth stagnated and even started to decline again. Some of this recent trend of can be attributed to seasonal patterns, however seasonally adjusted employment in November remained almost 9% lower than in 2019 (see Figure 1). Additionally, the November jobs numbers represent the eighth month in a row where the annual employment losses were more than three percentage points greater than at the worst point of the Great Recession.
While every sector and industry has been affected in some way, the largest story so far is the large impacts the pandemic and the efforts to address it have had on industries in the Service-Providing sector. Service-Providing and Goods-Producing are the largest subcategories under Total Employment and prior to the pandemic accounted for 88.1% and 11.9% of non-seasonally adjusted (seasonally adjusted data are only available for Total Nonfarm employment in the Duluth Metro) jobs in the Duluth Metro, respectively. Since February, industries in the two super sectors have faced disparate impacts.
Employment in Goods-Producing sectors did not fall as far as in the previous recessions and recovered more consistently and fully than other industries. Manufacturing employment was hit much harder in the Great Recession, and Mining, Logging, and Construction employment has returned to pre-pandemic levels. These industries appear to have been relatively insulated from the impacts of the pandemic. The -5.8% annual employment change in November in Goods-Producing sector is more than three percentage points higher than the Total Nonfarm employment figure (see Figure 2).
The Mining, Logging, and Construction sector, in particular, has fared relatively well, even surpassing pre-pandemic levels. Employment in the sector remains down over the year, but jobs were regained at a rate greater than the metro average. Since April, Mining, Logging, and Construction employment has increased 11.9%. Additionally, the peak annual employment loss of 18.6% was not as severe as the worst annual employment losses in 2001-2004 and 2008-2010 (see Figure 3). More direct effects of the pandemic on these industries may have been mitigated by the fact that many Mining, Logging, and Construction jobs are performed outdoors and can more easily accommodate social distancing. Lastly, employment in the sector was already declining prior to the pandemic, which also may have diminished the perceived effect of the pandemic.
Many Service-Providing sectors in the Duluth Metro have experienced significantly more challenges during the COVID crisis. Through April employment in these sectors fell 13.9% and at its lowest point was -14.6% below the previous year's level. Since that point, 6,981 or 42.2% of the 16,526 Service-Providing jobs have returned, yet employment remained down -9.3% over the year in November. In fact, November represented the seventh month of the last nine in which annual Service-Providing employment losses were three times greater than the worst point of the Great Recession (see Figure 4). Declines in Government, Other Services, and Educational and Health Services were prominent, but it has been losses in Leisure and Hospitality that have defined the crisis in the Duluth Metro and elsewhere.
In February 2020 Leisure and Hospitality accounted for 10.3% of all jobs in the Duluth Metro Area. By April that share fell to 5.8% even with significant employment losses in other industries and sectors. Leisure and Hospitality employment fell by 7,060 or 50.9% into April, leaving jobs levels 51.1% lower than the previous year. By August 61.9% of those jobs were regained as the busy summer tourism season worked to kick into gear. However, since August over 2,000 jobs were again lost, largely following the typical seasonal patterns of the sector, but also indicating a halt to what appeared to be a promising recovery.
In August Leisure and Hospitality employment's highest point since April, the annual employment change was -31.9%. September and October's over-the-year losses were slightly less severe yet remained five times larger than the worst annual losses of the Great Recession and seven times greater than the low point of the 2001 recession (see Figure 5). By comparison, Manufacturing and Construction were the two hardest hit sectors during the Great Recession, each down nearly 21% annually at their nadirs. Yet these low points were surpassed by Leisure and Hospitality in each of the past eight months.
Unlike Manufacturing and Construction, Accommodation and Food Service and Arts, Entertainment, and Recreation jobs rely heavily on interpersonal interaction and are often difficult to distance appropriately. The nature of many service industry jobs means that virtual work is not an option, leaving employees in the unfortunate position of being more exposed to the pandemic and many of the efforts to contain it. There is no analog in the previous two recessions or the many before that for the challenges faced by Leisure and Hospitality business owners and workers over the past nine months.
More than nine months in, it is clear that the COVID-19 crisis has no historical parallel. While all sectors of the economy have been impacted in some way, those that rely on face-to-face, close interaction are especially vulnerable. Goods-Producing sectors such as Mining, Logging, and Construction appear to have largely avoided the worst effects. Many Service-Providing sectors have not been as fortunate. Leisure and Hospitality employment specifically has been the most susceptible to the pandemic and its ripple effects, declining in some places by more than 50%. The halting and even declining employment gains of the past few months indicate that recovery is not yet assured, particularly within Service-Providing sectors heading into an uncertain winter. increased immunizations and federal aid, however, are positive signs that the crisis will eventually come to an end. Only then will we fully understand just how singular this economic moment was.
