St. Cloud Area Quarterly Business Report, Vol. 22, No. 2

Events associated with the COVID-19 pandemic have driven the local economy into recession. As has been seen throughout the U.S. (and the world), the temporary closing of many area businesses has caused an economic shock that has torn through the entire economy. Nearly all data measures have turned south as the human toll of the coronavirus has extended beyond deaths and hospitalizations to unemployment, business closures, and uncertainty that spans virtually all sectors of the regional economy. St. Cloud area employment contracted 11.5 percent in April 2020 compared to one year earlier. All sectors of the local economy shed jobs, with the largest year-over-year job losses occurring in the leisure/hospitality, other services, manufacturing, education/health, information, and professional/business services sectors. The only surprise in the data was a smaller than expected decline in retail trade, falling 3.9 percent in the St. Cloud area but 11.6 percent in the state as a whole. For the year ending April 2020, employment declines in the U.S., Minnesota, Twin Cities, Duluth, and Rochester were all worse than in the St. Cloud Metropolitan Statistical Area. With the exception of Rochester, the unemployment rate in these other regions is also higher than is being observed in St. Cloud. The St. Cloud Index of Leading Economic Indicators was down 0.3% in the quarter and down 2.3% over the last year. Current business activity at surveyed firms was weaker than at any time over the 22 years that the St. Cloud Area Business Outlook Survey has been administered (this includes quarterly survey responses from two previous recessionary periods—at the beginning of the 2000s when Fingerhut closed as well as during the Great Recession). For example, two-thirds of surveyed firms report a decrease in business activity over the past three months and more than half of firms report reduced capital expenditures. The future outlook of surveyed firms on the other hand suggests some room for modest optimism. While the survey’s forward-looking numbers are usually stronger in the May edition (see the chart accompanying the report in the box below), nearly one-half of respondents expect stronger business activity by November. All of the future outlook survey items are weaker than usual, but only two of these items slipped into negative territory in May. The outlook is especially weak for capital expenditures, but the recession has likely ended the local labor shortage. In special questions, a majority of surveyed firms expect a slow, gradual economic recovery (U-shaped recovery). Few firms expect a rapid recovery (V-shaped), a double dip recession (W-shaped) or a prolonged period of flat activity (L-shaped). Of particular concern is that more than half of surveyed firms expect the pandemic to have a medium- or large unfavorable permanent impact on the overall economy. Few local firms expect the local economy to experience a favorable permanent impact from COVID-19