Future of Maine's economy has been thrown into flux, MEREDA conference told
Image / Zoom screen capture
Former state economist Charles Colgan talks about the current and future economic challenges Maine faces at the Oct. 15 MEREDA fall forecast conference.
The good news is that Maine is ahead of the rest of the country in indicators for an economic revovery, Charles Colgan, former Maine state economist said Thursday. But there's also bad news, even ugly news and an uncertain future for the state's economy.
"The hard hit of the pandemic is only part of the issue," said Colgan, speaking at the Maine Real Estate and Development Association conference. "What happens with in and out-migration of workers, changes in real estate and how the state responds to climate change will all play a part."
Colgan said that no one is sure what the future holds for the state's economy. "I can see conflicts, I can see tensions, I can see all kinds of different possible futures for Maine," he told those participating in the conference. "I only know we are at that fork in the road." How it will play out in the short term, what happens with a coronavirus vaccine and the federal virus response, as well as the long-term factors "will basically be the story of the next 20 years."
The conference, originally scheduled for May, also featured an address by U.S. Sen. Angus King, I-Maine; University of Southern Maine President Glenn Cummings; historian Earle G. Shettleworth Jr.; Kim Hamilton, CEO of FocusMaine; and a panel of four Maine businesses that have experienced growth during the COVID economy — Scott Wellman, CFO of Puritan Medical Products; Amber Lambke, founder and CEO Maine Grains; Seth Webber, principal with Berry Dunn; and Briana Warner, CEO of Atlantic Sea Farms.
The Good: Maine is ahead of the game
The state is ranked 93% in a "Back to Normal Index" devised by Moody's Analytics and CNN Business, Colgan said.
"All other 49 states and D.C. are still behind us," he said. "Not often are we in the top of the chart in anything, even if it is kind of a made-up indicator."
The indicators are:
- The state's unemployment rate has come down, and is lower than in the rest of the country;
- The state's employment to population ratio is improving and better than the national average;
- Labor force participation rate has been faster than the rest of the country;
- Residential real estate sales and prices have increased sharply in the past months (commercial real estate figures weren't available).
A large part of the fact the real estate market has done so well is a 30-year mortgage rate of 2.87%, Colgan said. While it's the result of Fed policy "there's no indication it's going to change greatly," he said.
Compared to the recession of 2008-09, the construction industry today has not taken the same hit. This time around it's down about 600 jobs, he said.
"The construction industry has been an absolute anomaly in the current situation and one of the few really, really positive ones in terms of employment," he said.
The Bad: Job losses typical of a recession
The bad from the pandemic is "more typical of what you'd see in a recession," Colgan said.
Non-farm employment "is not exactly off the charts, but we had to rebuild the charts for this year," he said.
Job loss because of pandemic shutdowns hit management employment, despite workers being able to work from home, and there were big drops in manufacturing, though only a little worse than the Great Recession. Manufacturing only started improving over the last three years, and it's not clear how its recovery will go, he said.
Colgan said one major indicator of how the economy is doing overall is traffic on the Maine Turnpike, which showed a drop of more than 3.6 million trips in April from the year before, but has steadily recovered since then, though is significantly still below 2019 figures.
The same is true for Portland International Jetport data. Some 5,640 people flew out of the Jetport in April, down 153,265 passengers from April 2019. "That's a staggeringly low number," Colgan said.
By July, there were 66,806 trips, but that was down 172,993 from July of last year.
"So, there's positive signs in this, but we are still way below in our transportation indicators, which are very closely correlated with the overall health of our economy, where we need to be to be back to just where we were a year ago," he said.
The Ugly: Retail, hospitality hit hard
The ugly in the state's economy are the retail and hospitality sectors, he said.
The industries are high-employment, as well as "high touch" — meaning close contact with the public — "So, you'd expect it to be bad, but this is really awful," Colgan said.
"There's been some recovery, but the year-over-year change far exceeds what happened in the Great Recession," he said.
Colgan pointed out that activity in retail trade began to slow down in 2017, and while the pandemic "created an artificial sinkhole," there was also "clearly something going on" with employment demand in the retail industry in recent years.
Hospitality numbers — restaurant and lodging — showed hardly any movement in the Great Recession, "but a total collapse" during the pandemic. Last year, hospitality accounted for one in 11 jobs in the state; almost half of those were lost during the depths of the pandemic in the spring, he said.
There has also been no recovery in arts, entertainment and events because of restrictions against large crowds.
Professional and technical services have also shown a big hit. He said there's a sense they've been stable because of the shift to technology, but that's not the case. Education and health services are also showing "a huge collapse," mostly in education, local government and school services.
State government, where jobs have been declining since 2006, when there were about 28,000 jobs with a little bit of a bump up last year, to 24,000 jobs now. Colgan predicts it will lose another 4,000 to 6,000 jobs over the next few years without help from the federal government. "Preventing the economy, again, back to full employment," he said.
The Future: Virus, real estate, climate change
Two major drivers will have an impact on how the state's economy evolves, Colgan said: How fast the virus comes under control and how the economy responds, as well as the long-term issues of population migration and climate change.
"Will the current feeble response to the pandemic still be in play?" he said. Availability and effectiveness of a vaccine will also be factors.
"Earliest [recovery could be] late 2021, but you can easily see the current situation continuing into 2022," depending on federal response and vaccine success, he said.
Real estate will also be a factor in the state's economy.
"We reinvented much of our use of space in about two weeks in March," he said. "This is going to have profound long-term effects on the economy."
Given the large amount of new office space, particularly in Portland. "Are we going to go back to the office? Are we going to go back to a different office? Do we need the same amount of space or more space for a socially distanced world?" He said other questions are whether office space will still be built, or built on a smaller scale.
The same goes for residential construction. The majority of what's been built in recent years has been multi-family, when traditionally it's been 10%. Will that continue, or will people start opting for big single-family homes in the suburbs again?
"One set of forces is pulling us back together, another set of forces is pushing us apart," Colgan said.
Transportation and tourism may also be affected, but no one is sure how, he said. "Travel and tourism worldwide has just been clobbered," he said. "What about the cruise chips, are they coming back?"
The state's aging population, whether Maine gets an inflow of workers and how people work in the future could all have a variety of effects.
On the issue of climate change, "The costs of climate change are no longer avoidable, they are present," he said. "We're going to pay the costs one way or another, the only question is are we going to pay the high cost of doing nothing or the lower but still significant cost of adapting to climate change and mitigating our contributions."
In keeping with the conference theme, "The Chamberlain Model: Back to the Future," which drew on former governor and Civil War hero Joshua Chamberlain's economic forecasts and advice in an 1876 speech, Colgan said, "In many ways we are in a situation somewhat like Joshua Chamberlain and Maine faced at the end of the Civil War, where we are ending one period and beginning another whose outlines are not at all clear.
"Even with our better tools of economics and modeling, we still don't know a lot more than the folks who came out of the Civil War did."
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