Will We Bounce Back: Jebaraj Analyzes the Pandemic’s Impact on Arkansas’ Economy

Editor’s note: John Thomas’ interview with Mervin Jebaraj took place before the Fayetteville City Council passed an ordinance stating that, with a few exceptions, people must wear masks in all public indoor spaces.

John Thomas: Welcome to Short Talks From the Hill, a podcast at the University of Arkansas. My name is John Thomas, the communications manager here at the university. Today I’d like to welcome Mervin Jebaraj, director of the Center for Business and Economic Research in the Walton College of Business. Jebaraj has been at the center since 2007. Since COVID-19 began affecting our everyday lives back in March, the economy has been a focus at all levels of our country, from federal and state governments down to local and rural communities. While the economy of the country and state at large expects to bounce back, some smaller communities that were already struggling before the coronavirus outbreak may take longer to return to pre-pandemic levels or return at all. In April, Jebaraj published a report about those smaller communities and what he thinks it will take for those economies to rebound. Hear what he says about Arkansas economy as the calendar moves to the summer months. We’re all aware of the impact that COVID-19 has had on every aspect on our lives and businesses and having to adjust accordingly. How unique is this pandemic, just the economy as a whole, even to the state, where things have had to shut down, but, you know, not quite fully shutdown?

Mervin Jebaraj: Yeah, I think, you know, when you think of any recession that we’ve had, at least in any recession that we’ve recorded statistics for, we never have a situation where we’ve asked certain sectors of the economy to completely shut down, right. I mean, in any typical recession, no matter how severe it was, you know, one between 2007 and 2009, for example, was pretty severe, we’ve never actually had to shut down retail operations like restaurants and bars and salons and gyms, and places like that. So this is very different in the sense that, you know, overnight some of the business in those particular sectors went to zero. And, while on the other hand, you had some other sectors and retail, like grocery stores, where business skyrocketed in that brief period when the shutdown started in mid-March and sort of tapered off since then. But I think this is very unique in that sense. You know, so far what we’ve seen is that a lot of people have shopped at bigger box stores, in retailers that were open, some of them are obviously essential as grocery services, but a lot of them, especially in Arkansas, would not have been considered essential businesses. There’s just general merchandise stores, clothing stores and home goods and home-furnishing stores that are not considered essential operations, but they were nonetheless open. And as a result, we’ve seen business return to those types of establishments for a couple of reasons. A, because people got money in the form of those 1,200 dollar checks. And, you know, you can pretty much see, if you’re charted to consumer spending, the first day that those 1,200 dollar checks hit people’s bank accounts, you see an immediate increase in consumer spending coming from there. So obviously, people spent a lot of that money at bigger box retail stores that were open at the time. And that trend has remained constant, even as the smaller businesses and restaurants have started reopening. And I think it’s because two reasons A, you know, I think that people feel, whether or not they’re actually safe, they feel safer in larger spaces, because there’s a perception that, you know, there are a lot of people there, it’s not as crowded. And even if as many people not wearing masks and maintain distance, you have the perception that you’re in a larger space, so you’re safer. Whether that’s true or not, it’s beside the point for consumer behavior, and that, you know, that does not transfer over to smaller businesses and smaller spaces. And certainly, you know, larger businesses and large spaces haven’t uniformly enforced mask-wearing and social distancing, whereas smaller businesses that were closed down like restaurants and bars, just the reopening, and salons, etc., actually have to enforce those rules. So I think there’s sort of a difference in how people perceive these things, even though the ones enforcing the rules aren’t safer. People prefer to be in the larger spaces where the rules are not necessarily being enforced.

JT: You mentioned in one of your recent reports, a couple months ago about how smaller metro areas, rural areas of the state that were already struggling, struggling economically, are going to see sharper declines because of this. How did you come to that conclusion? And are those areas that will come out of this decline? Or will it just take them longer to do so?

MJ: Yeah, I think, you know, that was entirely based on how those regions have recovered from previous recessions. And so most of those regions struggled mightily during the last recession, what we call the Great Recession between 2007 and 2009. And, you know, in terms of business establishment growth, they just never recovered that. And in terms of employment, they finally got to about parity with where they were, sort of right before the bottom of the recession. So, you know, it took them close to 10 years to recover all the jobs that they had lost, not getting more jobs than they had lost or just recover back to the level that they were before the last recession. So the timing of this is spectacularly bad for those metro… I mean for those rural regions, because just as they recovered, the jobs that they’d lost, they’re going to see more job losses. Some of those job losses will be converted to permanent losses, so they’re not coming back. And again, it’s going to take a long time for them to recover those jobs, just as it did in the last recession… from the last recession.

JT: And now, it’s been a little over a month, little more than that, since you made that report. As things have started to reopen, are there now signs that the bounceback is on its way? Or is it still too early to tell?

MJ: So we’re seeing, you know, we’re able to track… and we have this on our website, which you can access as well… we’re able to track Google mobility reports. Google has obviously published mobility data for a variety of different types of businesses. And we’re able to track what’s going on a county level at the county level for sort of nonessential businesses that are like restaurants and retail, it’s not grocery stores. And what we’re finding is that, you know, in some rural counties or you know, smaller counties, we’re finding people going to businesses, especially nonessential businesses in those regions. So Crawford County is not exactly a rural county. It’s, you know, in the Fort Smith metro area, but it is a smaller county compared to sort of counties around it. They’re attracting… it looks like quite a bit of business from Oklahoma, surrounding counties in Oklahoma which opened earlier. Oklahoma lifted the restrictions earlier than Arkansas did. But the smaller counties in Oklahoma had fewer businesses for people to go to, so they came to businesses in Crawford County in Arkansas. And then, similarly, and on the other side of the state, close to Memphis in Crittenden County where West Memphis is, obviously is part of the Memphis metro area. So it’s getting hard to say that it’s a rural county but the population in Crittenden County is actually very low, and it’s a small county. Tennessee lifted restrictions later than Arkansas did. And Shelby County where Memphis lifted restrictions later than Arkansas, in general. And so you saw actually a lot of business in Crittenden County, from people probably coming from Tennessee, from Memphis and shopping in West Memphis, because things were opened earlier, with fewer restrictions. So there are those special cases, but really outside of those cases, these are border counties and, you know, assuming border effects, we’re not really seeing the dramatic increase in business and reopening, even though businesses have been allowed to reopen.

JT: You’ve seen the supply chain was a hot topic early on, you know, keeping that going in the midst of a pandemic and with things being closed. Here in Arkansas, obviously, that’s a crux of the economy in conjunction with the farming communities. What have you seen from those areas over the last couple months, or at least for the future, and how they’ve helped The shift in business.

MJ: I mean, I think what you’ve seen is fairly remarkable. You know, we’ve had these supply chains built over a long, long period of time about where food that is produced goes. And it’s very hard to change overnight, kind of, food packaging and food that’s produced to go to industrial or commercial consumers to go to individual households. So what we’ve seen happen over a period of time is actually fairly remarkable in that we’ve never actually had, you know, meat prices and some other grocery item prices did climb briefly, you know, sometimes shelves were empty, but we never really had this kind of overwhelming shortage that you would expect. Because the supply chains were able to quickly adapt to the new reality and try to figure out how to send food and toilet paper and products like that, that we’re going to commercial consumers, and move it in a way… and package it in a way that sold it to consumers. So I think that’s actually, you know, shows sort of the resilience of supply chain. Obviously, there are a whole lot of kinks still in the system. But that’s to be expected, in the sense that, you know, this isn’t normal. Switching from packaging, producing something for a commercial consumer to an individual household is very difficult, especially given that we don’t know how long this is going to last and how long we would need to make these changes for, because it costs X amount of money and resources to make these changes, to make all these products available in household consumption sizes. And you don’t want to invest a whole bunch of resources in making that conversion only for this to be over pretty soon, which I don’t think it is. But you know, again, businesses have to take that risk, if you will, to make those switches over to produce… convert commercial items into individual household items. But I think you’ve seen some amount of that. I think we’ll probably need to keep some of that capability going, at least through the end of this year while we see pandemic play out in the country as a whole.

Matt McGowan: Music for Short Talks From the Hill was written and performed by local musician Ben Harris. For more information and additional podcasts, visit researchfrontiers.uark.edu, the home of research news at the University of Arkansas.