Limelight Photography shot its last wedding on March 18.
Since then, clients have canceled or postponed 39 events, most in March, April and May, but a few in June and even July. One couple canceled a consultation about a wedding next January. They wanted a destination wedding in the Tampa Bay area, but guests balked at the idea of booking a flight.
Limelight owner Rebecca Zoumberos, 40, hopes to receive a federal relief loan to help pay her staff of 10. The downturn reminds her of the BP oil spill in the Gulf of Mexico 10 years ago. Back then, couples feared navigating black tarballs on white sand. A year passed before clients got comfortable scheduling beach weddings again, which make up about half of Limelight’s business.
"This feels similar,” she said of the pandemic, "except it’s on a times-1,000 global scale.”
The speed and severity of the pandemic recession, with nearly 30 million workers around the country filing for unemployment assistance in just six weeks, has business owners like Zoumberos worried about the future. A quick return to normal seems out of the question.
Instead, growing unemployment threatens to ripple through the economy: big drops in consumer spending, more layoffs, shortfalls in sales tax collections and rising bankruptcies.
“Not just a recession,” University of Central Florida economist Sean Snaith said, “but probably the worst recession since the Great Depression.”
A month ago, Snaith hoped for a brief slowdown — two weeks, maybe a month — and a fast recovery.
“It’s not just going to linger, it’s going to be a stain that’s going to take a significant time to clear up,” said Snaith, the director of the Institute for Economic Forecasting at UCF’s College of Business.
Mark Vitner, senior economist at Wells Fargo, sees reasons for optimism, including what looks like promising research into therapeutics to treat patients. It also helps that both the U.S. and Florida economies were in good shape when the crisis struck, he said.
That doesn’t mean the virus won’t do more economic harm, especially if it lasts longer than expected or comes back strong later this year. A second wave could take the wind out of any recovery and be a gut punch to consumer confidence.
“We are a long way from normal,” Vitner said. “And there are more unknowns with this crisis.”
The unprecedented rise in unemployment has taken a toll on consumer spending, a financial linchpin that drives 70 percent of the nation’s economic output. No surprise that politicians and industry executives are eager to re-start commerce as soon as possible.
That said, there’s no guarantee that when businesses reopen, patrons will follow, at least not initially and in the numbers that they did before the pandemic. A recession that was once hoped to have a V-shape — a steep drop, followed by a quick rebound — looks more likely to resemble a U, with its slower recovery.
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This crisis also comes with an unusual wildcard: fear of getting sick.
During the Great Recession, people worried about home prices and banks collapsing, but they weren’t afraid to go out. They went to the movies and ate at favorite restaurants. They were fine getting on a plane or going to a concert. Those with jobs went to work and chatted with colleagues in the break room.
Now, when the government gives the all-clear, many people won’t rush back to restaurants and book travel plans. They will wait until they feel safe, a judgment that differs from person to person.
“People are going a bit stir crazy and will be anxious to get out again, but if you don’t have a job, it’s not like you’re going to be able to go out and spend,” Snaith said. “Then on the tourism side of things, how quickly are people going to be willing to fly again and go to theme parks and beaches?”
Not very quickly, according to a recent survey by the nonprofit, pro-business Tampa Bay Partnership. Only half the respondents said they would feel safe returning to normal activities when public health officials declare the pandemic is over. They were asked how long it would take to feel comfortable returning to certain activities. The answer: 52 days on average before going to a restaurant, 108 days to stay in a hotel and 332 to get on a cruise ship.
A Pew Research Center poll found that two-thirds of U.S. adults worry that restrictions will be lifted too early. Nearly three-quarters — 73 percent — said they think the worst of the pandemic is yet to come.
“Fear plays a huge role in keeping people from going back to their normal lives quickly,” said John Johnson, an economist and co-founder of Edgeworth Analytics, a research and data firm.
If people are reluctant to go out to eat, then restaurants won’t hire as many people. Same for concert venues, airlines and theme parks. The people who can’t find work don’t have as much money to spend, which keeps the economy from recovering. It’s a snowball effect that can be tough to stop, even with some pent-up demand from people staying home for weeks.
Getting back to full employment will take time.
Many businesses won’t survive the shutdown, so former employees won’t have a familiar place to look for a job. They’ll have to ramp up their search, which will take longer. Many businesses that reopen will take their time hiring, expanding the workforce only as they grow confident in a lasting recovery.
Even employers that intend to rehire former employees likely won’t do it all at once. In addition, some people will retire, move or otherwise drop out of the labor force. The movement will force businesses to find new employees, who they have to vet. That takes time, too.
“Everyone isn’t going to walk in at 9 a.m. on a Monday morning and say, ‘Okay, we’re back,’ " Johnson said.
Some businesses will have to reestablish relationships with vendors or address disrupted supply lines. A device manufacturer that bought ball bearings from China might need to find a new supplier. Shortages of key supplies could keep a manufacturer from hiring as many people as it had before the crisis.
All those factors, which economists call friction, combine to slow the recovery.
Jesse Latzman, for instance, is certain he’ll return to his job recycling precious metals from dental offices. But the 42-year-old Orlando-area resident said he knows he’ll have to wait, even after the economy revs up. Many dental offices are closed, others are only handling emergencies. Once they reopen, it will take time for them to build up enough gold, platinum and palladium for him to recycle.
“It will be a few weeks or months,” said Latzman, whose income is based entirely on commissions.
The drop in consumer spending likely will result in another round of layoffs, said Bradley Kamp, the chairman of the economics department at the University of South Florida.
“Initially, with the stay-at-home (orders), people automatically lost their jobs,” Kamp said. “If you were a hairdresser, you were laid off. Now what you’re going to see in the next wave are people who aren’t necessarily losing their jobs because (they have) to stay at home. They’re losing their jobs because of drops in demand.”
That could include car mechanics who lose business because people aren’t driving as much or dry cleaners idled because office workers aren’t bringing clothes in while they work from home.
"If it goes longer and longer, we might hit a third wave,” Kamp said.
Federal Reserve Bank of St. Louis economist Miguel Faria-e-Castro has estimated that more than 52 million Americans could lose their jobs as a result of the pandemic. That could put unemployment at 32 percent — higher than at the depths of the Great Depression.
It’s not just small businesses that are thinking about cutbacks. St. Petersburg-based Jabil, which has a global workforce of 225,000, has not done any staff reductions beyond some “very minor furloughs,” chief executive officer Mark Mondello said recently.
But if the crisis goes on longer than expected, layoffs grow more likely, Mondello said.
“Who knows?” he said. “Maybe we get through this with little to no reductions.” In the next breath, he said a prolonged crisis would make cuts "more probable than not.”
Sales tax revenue
In March, Florida’s sales tax collections were $2.1 billion, less than 1 percent lower than estimated. State economic analysts told legislators the total mainly reflect sales that took place in February, and the surge of buying in advance of shutdown orders might have offset some weakening in overall spending. (While much food is tax-free in Florida, toilet paper is not.)
But no one expects sales tax collections to remain as strong for late March and April.
Hotels, restaurants, theme parks and events remitted about $5.6 billion last year, or about 20 percent of the total, according to the Florida Department of Revenue. Auto dealers accounted for another $4 billion, or 14 percent. The retail sector added $1 billion. The pandemic has pummeled all of those industries.
Commercial landlords submitted nearly $2 billion in sales tax last year. But some recently waived or lowered rents for a month or more. In other cases, tenants stopped paying. Both scenarios result in less sales taxes for the state.
During the Great Recession, Florida’s sales and use tax revenues fell a little more than 20 percent from 2006 to 2009. They didn’t fully recover until 2014. This time, the blow will likely be much deeper, at least in the short term. Many businesses have closed completely. Others are limping along.
In addition, the coronavirus crisis struck at the worst possible time for many Florida businesses, which rely on the spring tourism season to make much of their income for the year.
“That’s going to be a big budget hit in Tallahassee,” Snaith said.
Jason Kuhn saw sales at his two local auto dealerships plummet in the second half of March and into April. Business picked up a bit recently, but he estimated that sales at most dealers are down 40 percent to 60 percent. He’s had to cut expenses, including furloughing employees.
The auto business had been running strong for five or six years, he said, so it was due for a natural pullback even before the crisis. But he said it’s hard to predict how consumers will behave after a pandemic like this. When will reluctant shoppers feel comfortable making big-ticket purchases?
One thing he’s watching closely is where the unemployment rate settles after it comes down from historic highs. Even if it lands in the 6 percent to 7 percent range, that’s twice as high as it was before the crisis. The higher the rate, the fewer people who can buy cars, he said.
“It’s a chicken or the egg thing,” he said. “When people don’t have jobs, they don’t have money to spend. When people don’t spend money, more people lose their jobs. It can become a death spiral. I’m not saying we get to those catastrophic levels. We probably won’t. But it’s just such an unknown right now.”
The financial fallout from the pandemic also is expected to create a surge in business bankruptcies. How big an increase remains a question, but the Brookings Institution said it could blow past the number set during the Great Recession or the bursting of the dot-com bubble in 2000.
Going into the crisis, businesses already were carrying “an extraordinary amount of debt,” as much as $15.5 trillion, wrote Brookings author David Skeel. For large corporations, it’s 52 percent higher than at the previous peak in 2008, by one estimate.
Along with the debt, customers staying home will put a strain on businesses, forcing some into bankruptcy, but not necessarily right away, according to Stephanie Lieb, a Tampa bankruptcy attorney with Trenam Law.
The first to feel the hit were businesses such as restaurants and stores, where customers pay at the cash register. Other businesses such as medical practices and law firms bill insurance companies or wait for clients to pay. Expect to see more bankruptcy filings from those businesses in three to six months.
“They may be insulated for March and April, but really June is when they’re going to start feeling the effects,” said Lieb, who mostly represents creditors. "I think as time goes on, there will be more industries affected and more people affected, and we’ll see a dramatic increase in bankruptcies year over year.”
Recent changes adopted before the pandemic streamlined the process for small businesses looking to reorganize debts under Chapter 11 of the U.S. Bankruptcy Code. As part of the $2.2 trillion CARES pandemic relief act, Congress also made it easier for more businesses to file bankruptcies under the new process.
Companies in some industries, such as retail, were already “teetering on the edge before the pandemic," Lieb said, and this crisis will be “the last nail in the coffin.”
Sectors that have been booming, like commercial real estate, could see what Lieb describes as a “trickle-up effect”: If the owner of a store that’s closed can’t pay rent, that puts a squeeze on the landlord and, potentially, the landlord’s lender.
At the moment, most of the banks Lieb works with are focused on processing as many small business loans as possible through the new federal Paycheck Protection Program. The extra work has slowed banks from moving ahead on loans in default or in trouble.
Going forward, "I think that they’re generally understanding and willing to give some concessions to get through to a reopening (of the economy) to see what that looks like and whether these businesses are going to be able to recover before taking any drastic steps,” she said.
In the meantime, Lieb said, businesses need to communicate with lenders and work on realistic plans for reopening in a time of diminished spending.
“They’re going to have to adapt to the new normal,” she said.
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