Corona storyline #2: restaurants

Continuing to wrap my head around the key economic story lines. Restaurant and bar employment is about 12.3 million, but as the virus spreads even further people aren’t going out to eat any more.

Data from Open Table shows that restaurant visits are down up to 50% in major cities such as Seattle, New York, and Boston.

Data from Open Table. Graph produced by Paul Goldsmith Pinkham.

This is big trouble for restaurants, who will close en masse if this keeps up. In Seattle, where the outbreak has hit the hardest, already 50 restaurants have closed.

To add to this, many states and cities are starting to show down or restrict the operation of restaurants and bars for the near term:

  1. Boston has banned dining in at restaurants.
  2. Chicago: Bars and Restaurants closed to dine in customers through March 30. Open for delivery and takeout. 
  3. NYC: Bars and restaurants closed to dining in.
  4. NJ: Closed to dining in.
  5. California: Gov calls for closure of bars, occupancy of restaurants to fall by half
  6. DC: Restaurants and bar occupancy to be halved.
  7. Rhode Island closed to dine-in customers through March 30.
  8. NJ: No on site dining
  9. Ohio: Bars and restaurants shut down
  10. Pennsylvania: no dine in at bars and restaurants

While some establishments can transition to take-out and delivery only, it is unclear the revenue drop from this switch and many will be forced to close.

In New York City it seems many are closing down and laying off staff.

In the short term it seems that many places will go out of business due to the fact they still have to pay leases, interest and debt, and sales tax. Quick relief for restaurant owners could come if the sales tax payment is deferred. Other potential relief for restaurant owners could come if lease payments are deferred.

March 17:

  1. Bloomberg: plan to support restaurant workers
  2. The Atlantic: Restaurants will need a miracle. Notes that restaurant employment is about as large as manufacturing employment!

Updated data from Paul Goldsmith-Pinkham. Looks like total reservations down 50-75%

New from FT: Many restaurants closing

Economists on the Corona Virus

A few links here to what economists are saying about the Corona virus

  1. Saez and Zucman have a short note arguing that the government needs to help business to avoid mass layoffs
  2. Arindrajit Dube’s twitter thread on labor hoarding, and why companies need to more of it. And now, his policy proposal.
  3. Tim Bartik with a proposal for a tax credit to encourage labor hoarding
  4. Pierre Olivier Gourinchas on flattening pandemic and recession curve
  5. Jason Furman on the economic effects of the pandemic
  6. Ricardo Reis argues this is mainly a supply shock
  7. Economic Policy Institute policy proposal.

Latest journalist coverage of the economic effects

  1. NY Times on consumers cutting spending
  2. Risks of corporate debt defaults
  3. Robert Shiller: “In 1933 when Roosevelt took office, he said there is “no plague of locusts” referring to the Depression. …There was no pandemic—no pandemic of insects or of viruses. But now there is. This is really different.”
  4. WSJ: Companies have so far largely avoided layoffs. This may not last.
  5. Patagonia halting operations.

Corona storyline #1: #blackmonday, and #My401k

March 18

Bloomberg: Nice overview of the sectors that are more or less affected by the decline.

March 14

As the stock market plunged this past Monday, the denizens of Twitter awoke to find that all was not well with their stock portfolios. And as a researcher who studies the macroeconomic effects of the stock market, the results were interesting.

#My 401k and #blackmonday

Not surprisingly, the populi were concerned about their 401ks, which for many is the main source of retirement income, and #My 401k was trending.

From a few reactions it would seem that there may be a negative wealth effect.

Not everyone, however, was on board with this logic.

Facts don’t care about Haig-Simons income.

From a macroeconomic standpoint, while a falling stock market may be a sign that investors think a recession is coming, it can also itself be a potential cause of a recession. A major concern is that a falling stock market (a) could depress spending through a wealth effect (b) can influence spending through consumer confidence / a narrative of an economic collapse. And the numbers are not looking good. Although markets were up broadly on Friday, the Wilshire 5000, the broadest index of US stocks, was down 21% from its peak.

To get a back of the envelope estimate of this economic effect, before the crash Americans owned roughly $34 trillion in equities. A 21% decline is a hit to financial wealth of $7.2 trillion dollars. 401ks alone dropped in value by about $1 trillion. But how does this drop in stock market wealth effect the economy?

The best recent estimate of the effect of stock market wealth on spending is from Chodorow-Reich, Nenov, and Simsek, who find that people spend about 3.2 cents every year for every dollar of stock market wealth they own. A decline of the magnitude we’ve seen, if it persists, would then lead to a decline in consumer spending of $230 billion per year, or 1% of GDP.