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Why COVID-19 outbreak is putting Buffalo Niagara's economy at great risk

David Robinson

The Elmwood strip has gone eerily quiet.

Shoppers are avoiding once-bustling malls, as County Executive Mark Poloncarz is urging them to do.

Movie theaters have gone dark. Casinos have turned silent. Hotels are emptying out. Restaurants and bars are shut down.

Across the Buffalo Niagara region, the ripples from the coronavirus outbreak are spreading, bringing major portions of the local economy to either a screeching halt or a noticeable slowdown.

We don't know what's next for the region's economy. With people being urged to stay home, businesses that depend on consumer spending are reeling. And it's all happening in a matter of days.

It's still too soon to quantify just how big of a disruption the economy is facing, but there's no question that it's big.

Let's look at the one sector that is being hit the hardest – arts, entertainment, recreation, accommodation and food services. We know from the federal Bureau of Economic Analysis that the sector, which includes things like movies, concerts, plays, restaurants, bars and hotels, contributed $2.6 billion to the Buffalo Niagara economy during 2018, the latest year where data is available.

That's about 4.3% of the region's economy.

And now it's pretty much shut down.

Even though many of the jobs are part time and relatively low paying, they still add up. Wages from the region's bars, restaurants and other food service firms total $860 million annually, according to the federal Bureau of Labor Statistics. Hotels and other types of accommodation business add another $120 million a year.

Add it up, and it's more than $1 billion in wages annually. Or about $19 million a week.

And now much of the industry is shut down and a big chunk of that $19 million in weekly earnings is disappearing.

About 60,000 people work in the leisure and hospitality sector locally, according to state Labor Department data. That's about one of every nine local jobs. To be sure, not all of them are going away, but thousands of them already have been slashed as bars and restaurants closed, the Buffalo Sabres season and every other sporting event has been postponed or canceled and hotels are emptying out.

"The leisure and hospitality sector will take an outsized and immediate hit," said Julie Anna Golebiewski, a Canisius College economist.

"Think of the effect of sports," she said. "That really translates."

And there are sure to be more to come.

Even worse, that's just the most easily quantifiable portion of the economy that's at risk. The shutdown of local schools impacts bus drivers, cafeteria workers and countless other employees who work at the region's schools and colleges.

General Motors and Ford Motor Co. said Wednesday they will be temporarily closing all of their plants, including those in the Buffalo Niagara region. While workers will continue to be paid, the drop in production will affect its suppliers and service providers, sending further ripples through the economy.

With officials urging people to stay home, people aren't going to stores as they once did, unless, it seems, they sell groceries or liquor. Enclosed shopping malls - and even bowling alleys - are shutting down by 8 p.m. Thursday, casting thousands more workers into unemployment.

All of those workers, whether they're directly affected or just worried that they might be in the coming days and weeks, are likely to be hunkering down, just like everyone else.

That means the region is on the verge of a tremendous drop in consumer spending – and consumers account for about 70% of all economic activity. All of that money that otherwise would go toward a movie or a Sabres game or a restaurant meal is going unspent. And because it is, people are losing their jobs – and their incomes – because of it.

If it persists, less spending also will trickle to other parts of the economy. That will lead to lower output from other types of businesses and that will result in lower incomes for the workers who make those goods or provide those services. It's a downward spiral.

That's not to say that there won't be some reshuffled spending that helps cushion the decline in those areas. With restaurants and bars shut down, for instance, consumers will spend more at grocery stores. Health care spending is on the rise, too. Instead of spending at the mall, consumers may buy what they need online, but that may shift those dollars away from local stores and toward online sellers elsewhere.

But none of that will make up for the lost spending and incomes from the thousands of local workers who are likely to lose their jobs.

Earlier this week, a survey of New York manufacturers found that business activity at the state's factories plummeted to its lowest level since 2009 – during the Great Recession.

The survey by the Federal Reserve Bank of New York was significant because it focused on New York manufacturers and it was timely, based on the results of a survey conducted between March 2 and 10.

The disheartening results were especially concerning because they don't reflect the rapid escalation of the crisis that happened last week. Even so, the New York Fed's index of business activity had its biggest drop since it started doing the survey in 2001. And there was little optimism among the manufacturers surveyed that things would get better anytime soon.

"Firms no longer expect general business conditions to be better over the next six months," the Fed said.

That's partly because nobody knows how long the coronavirus outbreak will last, how many people will get sick and how quick the economy will bounce back once it ends.

"To what extent, we'll just have to see," said Timothy Glass, the Labor Department's regional economist in Buffalo. "The variables are very high and the uncertainty is very high."

But there's no question that the stakes are high. Very high.

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A big hit to the economy

  • $19 million: Estimated lost wages each week from bar, restaurant and food service closings
  • 60,000: Number of local leisure and hospitality jobs
  • 4.3%: Portion of local economic activity that comes from arts, entertainment, recreation, accommodation and food service
  • $2.6 billion: Contribution to the economy from arts, entertainment, recreation, accommodation and food service

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