Transcript

Charles Gerena: I'm Charles Gerena, web administrator for the Research Department at the Federal Reserve Bank of Richmond. Today, I am speaking with Renee Haltom, vice president and regional executive with responsibility for public outreach and engagement in Virginia. Renee regularly meets with business, banking, and community leaders to discuss economic conditions as well as share information about the Federal Reserve System.

Renee will share what's she has been hearing about Virginia's economy this year, especially in light of the COVID-19 pandemic.

Thanks for joining us, Renee.

Renee Haltom: Thank you for the opportunity.

Gerena: Before the pandemic hit the U.S. economy hard, how was Virginia doing?

Haltom: Like the rest of the country, Virginia was doing incredibly well. We were in the middle of the longest economic expansion on record, while unemployment was near record lows in Virginia.

Going into 2020, some people had concerns that a recession might be on the way, but that seemed mostly due to intangible factors. You couldn't really pin it down to much that was concrete other than, "what goes up, must come down."

If there was one tangible concern I did hear from employers, it was the extreme shortage of workers, especially in sectors like skilled trades, technology, and nursing. You saw firms doing really innovative things to make themselves stand out to workers, such as investing in fancy new buildings and really focusing on their cultures as a selling point.

Gerena: Once people had to stay home to slow the spread of COVID-19, which parts of the state's economy were affected the most?

Haltom: Well, you could answer that question either by sector or by geography.

The high-touch sectors were hit hardest first – restaurants, hotels, health care. The leisure and hospitality sector alone lost more than 40 percent of its workers in April. That's almost 164,000 job losses in one sector of Virginia in one month – very staggering.

Other sectors were hurt as well. Manufacturers and homebuilders suffered due to supply chain disruptions, occasional plant closures due to virus outbreaks, and concerns about whether people would continue to buy homes in this environment. Retail was hit hard, shedding 12 percent of workers in April.

But no one was immune – there really was a bit of a multiplier effect across sectors. Professional services firms laid off workers because there wasn't as much business. Construction firms laid off workers because state and local government projects were being delayed or cancelled. And, in general, many firms that previously planned to expand halted those plans until they had greater clarity on how bad the virus would get and how long it would be with us.

Gerena: How did the pandemic's effects vary from a geographic standpoint?

Haltom: Well, for individual regions, I'd say two things determine how you've fared generally since March. It's the sectors that normally drive your local economy and the number of COVID-19 cases you've experienced.

Hampton Roads, for example, was hit hard because it has so many hotels and tourist attractions. And they had virus outbreaks as well, significant virus outbreaks. Northern Virginia was hit hard by the virus itself, yet a lot of tech investment related to Amazon's second headquarters went ahead virtually uninterrupted.

The western part of Virginia didn't have as many COVID-19 cases overall, but it was hurt for sectoral reasons. Blacksburg's economy is very dependent on Virginia Tech, so it suffered when students were sent home and were no longer there to visit restaurants and shops. The reduced crowds around college football have also caused a huge fiscal hit to that region. The Roanoke region also has some private colleges and has an outsized dependence on wholesale and retail trade. So overall, this region lost an outsized share of jobs.

In the northern part of the Shenandoah Valley, the agricultural sector was strained by disruptions to the food supply chain. Many rural areas benefitted from having relatively unconcentrated populations and, therefore, a lower incidence of COVID-19. But some were already hurting economically when the pandemic hit. And now, businesses and households are really feeling the incomplete access to broadband internet connectivity, given the heavily remote world we're in.

Gerena: That's interesting you touched on rural broadbrand. That has been an ongoing issue. Did Virginia"s economy have any other "pre-existing conditions," so to speak, that contributed to these variations?

Haltom: Well, one of the things that concerns me the most about COVID-19 is the significant disparity of outcomes. Some sectors and households are doing basically fine, while others are hurting dramatically. I think we're going to be dealing with the repercussions of this for a long time to come.

I can't help but focus on the impact of school closures, since I have school-age daughters. For the youngest children, virtual childcare isn't really a thing. So, in many cases, a caregiver had to drop out of the labor force and stay home. For school age kids, I'm not sure anyone feels virtual schooling is ideal, but it's certainly more problematic for some kids than for others – on the basis of learning styles, plus if you don't have a supportive environment or broadband at home, you're really having a fraction of a school experience now. And all the research suggests that if you fall behind in school, it is difficult to ever catch up.

I've heard stories about multiple families sharing a two-bedroom house, where five children and two adults are crammed into one room trying to work and learn. And in more rural places like the Shenandoah Valley or Southwest Virginia, where broadband access is a serious problem, I have heard stories of a child being driven 10 miles to the parking lot of the local library once a week just to access its internet. They would upload last week's homework and download this week's assignments and go home to do them offline, with virtually no lecturing and learning mainly through worksheets.

It doesn't take much imagination to see how disparities are likely to be concentrated by race and income, and likely to worsen disparities already in place for a long time to come.

Despite these variations, Virginia's economy as a whole has done better than the nation during the pandemic, meaning we lost a smaller share of jobs and our unemployment rate didn't spike as much.

Gerena: That's interesting. Why is that?

Haltom: One reason is that our economy is very tied to the federal government given our proximity to Washington, D.C., and the nation's capital was relatively stable in the early days of the COVID-19 pandemic.

There have been times when Virginia was adversely affected by the federal government's outsized presence in the state, such as during the budget sequestration in 2013 that resulted in cuts in federal spending. Generally, though, our relationship to the nation's capital helps cushion the blow of economic downturns.  

Another reason that Virginia has fared better is that our economy is concentrated in sectors that, compared to the U.S. as a whole, may have been more conducive to the shift to a work-from-home environment. For example, we are relatively concentrated in professional and business services. And it's not hard to imagine that workers like accountants and lawyers could more easily work from home and that their business could more or less continue remotely.

Finally, Virginia has a more highly educated workforce than the nation as a whole, and more-educated workers are less likely to lose their jobs. That is always true in recessions.

Gerena: Where do we go from here? It doesn't look like the pandemic will subside any time soon.

Haltom: The good news is that we are learning how to function and keep the economy moving with the novel coronavirus around. But, make no mistake, any economist will tell you that the course of the economy, now, truly is the course of the virus.

But layered on top of the virus itself are a number of uncertainties about how people and businesses will respond. Suppose there is a vaccine. How quickly will consumers come back to the table? What level of economic activity will we return to? And, will the recovery be evenly shared?

Let me end with a couple of bright spots, too. First, I am seeing remarkable things happen at the community level.

Here in Richmond, a group of business and community leaders called the Capital Region Business Response Team started meeting three times a week early in the pandemic to share information about what we were hearing from businesses about the strains they were facing as well as households, and to rally resources to help – for example, how to connect businesses to the Payroll Protection Program and local grant money, and how to understand the guidelines for reopening safely.

Many of us had never been in the same room before, and here we were meeting and having fellowship weekly via Zoom. We started to joke that it was really group therapy.

I think what happened in Richmond is special, but it is happening in other places – the Hampton Roads Alliance and Project Rebound in Charlottesville are other examples – and that's really heartening to see.

I bring this up because I think the pandemic has the potential to breed a new level of regional cooperation and collaboration that will help us not only face the continued challenges of COVID, but also address more fundamental challenges across our regions.

That relates to the second potential bright spot. Our country is dealing with terrible pain now as we confront systemic racism. But I am seeing more honest and proactive conversations at the local leadership level about how to remove barriers and make the economy work for all. I certainly hope that is a trend that continues.

Gerena: I hope so, too. Well, Renee, thanks for joining us for our podcast.

Haltom: Thanks for having me.