Colby economic outlook projects an upward trajectory, with some qualifications
Photo / Maureen Milliken
The Colby Economic Outlook, a report put together by senior economics students at the college, projects an upward trajectory for the state's economy following the pandemic.
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The Colby Economic Outlook projects a big bounce-back for Maine's economy, depending on a quick recovery for retail and tourism-based businesses and more federal stimulus.
The report was written by students in Colby College's economics senior seminar, and assesses four measures — total retail sales, total employment, turnpike traffic and real personal income.
But the predicted upward trajectory, extending into 2022, depends on the recovery of service industries. In Maine and nationwide, that comeback hinges on more federal fiscal stimulus, a successful vaccine rollout and the public adhering to pandemic guidelines to limit surges and more shutdowns, the report says.
Maine's unemployment rate is at about the national average, and it's going to take until well into 2022 before the state returns to low unemployment levels seen before the pandemic, the report found. Still, the report says that there's reason to be optimistic.
"While the shock of the pandemic was intense, Maine has found its way out of the pandemic lows and is on its way to see strong growth," it says. "The recovery was nearly fully complete according to our index by 2020Q3 and 2020Q4, a good sign that this shock was quick and painful but not defining."
The report's forecast for gross domestic product shows a sharp V-shaped recovery — the economy bouncing back to pre-pandemic levels. Maine's return to pre-pandemic levels could come as early as first quarter of 2021, with an annualized rate of growth of 4.34% through 2021, and a prediction GDP will grow an additional 2.79% from 2021 to 2022.
The state, before the recent upsurge in COVID-19 cases, scored an 88 in CNN and Moody’s “Back to Normal Index,” which is based on measures of output, labor, travel, housing and consumption. That means the state's economy was 88% back to March levels. As of mid-November, that was the highest ranking of any state.
Colby's senior economics students have been producing the report since 1989. Not surprisingly, the pandemic has skewed earlier methods of understanding and predicting the economy. "It appears that the only way to get a handle on the economy is to handle the pandemic," the report says.
Hospitality sector will bounce back
Maine is more reliant on the service sector, which includes the retail and tourism industries, and how those industries recover will determine how the state's recovery goes.
"This has largely been a services sector recession, setting it apart from past recessions in its catastrophic effects on tourism and hospitality, retail and professional services, as travel was severely limited and local economies shut down," the report says.
Maine's strong hospitality growth over the past six years has a foundation in the state's marketing campaign, and is in a good position to lure visitors back to the state. The report points to the fact that many people saved disposable income this year by not traveling, and if they resume visiting Maine in 2021 it could offset this year's massive drop in tourism.
"If not for this random negative shock to the tourism industry, it is unlikely that we would have seen a decline in lodging and restaurant employment this year," the report says. "Therefore, we are optimistic about a strong return to normal for staff in this industry."
The forecast predicts that restaurant and lodging sales will grow back 33.35% in 2021 and by another 8.03% in 2022, bringing the state back to pre-pandemic levels.
It also predicts the decline in employment in 2020 will be completely offset in 2021, with a 26.41% increase in tourism employees. It predicts another 3.66% growth in lodging and restaurant employment in 2022.
Retail sales in general, should recover well, too. Before the pandemic, retail sales were driving the strength of the Maine economy, the report says. Just as with the national trend, over the last decade consumption of retail sales has reached all-time highs.
Growth in 2020 was 1.52%, lower than 2019's 6.52%, but still an increase, largely because of online shopping. The report projects 4.79% growth in 2021, and 2.04% in 2022.
The report also breaks down the state's economic damage from the pandemic by county, with Cumberland, York and Hancock, the ones that benefit the most from out-of-state tourism, being the hardest hit, particularly with employment. While it shows those counties recovering quickly, the report also predicts that some of the less hard-hit counties, like Aroostook, Knox, and Lincoln, could have declining employment through 2022.
National predictions
Nationally, consumption of both durable and nondurable goods has recovered, but consumer services will experience a longer recovery period heavily dependent on if there are more shutdowns, and also the success of the vaccine rollout.
Airlines and recreational activities will be among the last areas continuing to struggle, as long as capacity limits are in place, the report says. Services consumption will likely come back to normal towards the end of 2021 and into 2022, with an annual growth rate of 5.42% in 2021 after a nearly 7% decline in 2020, followed by 3.29% growth in 2022, the report says.
The report also predicts big changes to how consumers shop, travel and spend their money. It predicts more online shopping and less international travel.
Overall, while the vaccine rollout, Maine's control of COVID-19 and a possible stimulus boost are behind the projections, the study cautions that it could all go the other way.
"The winter surge in COVID-related infections, constraints on hospital capacity, a second wave of shutdowns and insufficient vaccine distribution are all plausible negative shocks to the health of Maine’s economy," the report says. "Any combination of these developments would significantly reduce the growth Maine has seen, and similar to the U.S. model, could induce a second recession.
"While our forecasted CCI predicts strong 2020 and 2021 growth that offsets the March 2020 lows, at this point it is unclear how robust this recovery truly is."
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