Seventy-seven thousand or more filing for unemployment. A near 9% unemployment rate. Retail sector jobs declining by 16%. Employment in the arts, entertainment and recreation tumbling by 20%. Consumer spending off by 5% or more.
That’s the doomsday scenario laid out for the Arkansas economy by University of Arkansas Little Rock economist Michael Pakko in the early wake of the COVID-19 (coronavirus) pandemic. Some of his peers say it could be worse.
“As the impact of the novel coronavirus disease 2019 (COVID-19) works its way through the economy, national economic forecasts are showing an increasingly grim outlook. In addition to disruption of world supply chains, the decline in consumer spending associated with social distancing is generating forecasts with significant reductions in aggregate demand that make a recession appear inevitable,” Pakko said.
For big and small businesses, these numbers quickly suggest recession levels, and if they’re worse and prolonged, the word “depression” will resurface in American economic circles.
Congress is pumping more stimulus and capital into U.S. commerce. That should help, according to many financial experts. Still, the timing and pace of those injections and, of course, the depth and breadth of the coronavirus spread will determine how successfully businesses navigate uncharted waters.
For Arkansas banks — most of which would be considered community banks — the necessity to help clients survive this dystopian economic scenario is crucial to the region’s survival.
“This could dwarf 9/11 and the financial crisis of 2008-2009 combined,” said one banker in a candid conversation.
SAFETY FIRST Before addressing the paths out of financial bedlam, area financial institutions have been doing all they can to protect employees and customers from the coronavirus while keeping doors — or perhaps windows — open for business.
In March, the Arkansas Bankers Association announced a statewide push to get bank customers to use drive-thrus, ATMs and online options as many banks in the state closed or limited facilities to walk-in traffic as a precaution against the spread of COVID-19. The association stressed that bank services would remain available.
There were 87 bank institutions in Arkansas as of Dec. 31, 2019, according to the Federal Deposit Insurance Corp. (FDIC). Assets of all Arkansas banks as of Dec. 31 was $112.86 billion. The industry also employs 27,000 people in the state, according to the ABA.
Other actions taken by banks in response to COVID-19 included:
• Banks enhancing their cleaning and sanitary practices to help mitigate the potential spread of the virus. • Banks implementing travel restrictions for their staff members. • Many non-essential, non-customer-facing bank employees are being asked to work from home until further notice. • Customers are encouraged to check the financial institution’s website for updates as the situation evolves.
“We’re also relying on the CDC [Centers for Disease Control and Prevention] for best practices for our associates — things like social distancing, ensuring they wash their hands frequently, limiting travel and staying home if they feel sick,” said Jim Cargill, president and CEO of Arvest Bank in Central, Northeast and Southwest Arkansas. “Additionally, we have ramped up the cleaning that is done by professional cleaning services at our facilities. They are providing deep cleanings on a regular basis.”
Bank officials are warning customers against scammers too, noting that no bank official will ask for account numbers, social security numbers, pins, or passwords when contacting a customer via phone, text message or email.
THE FINANCIAL IMPACT No one knows how catastrophic the financial hurt could be for local businesses and their employees. Large corporations with sizable balance sheets will be better able to survive significant hits in the short-term. They also have the ability to renegotiate their debt through credit facilities, especially with the easement the Federal Reserve Bank is making available.
Congressional action is also spawning new cash flow and debt management opportunities for big and small businesses. The $2.2 trillion package agreed to last week provides funding for small businesses to mitigate layoffs and support payroll through low-interest loans and deferral of employer-matching payroll taxes.
Congress is pumping more money into unemployment funding for laid-off workers, and state government is making unemployment claims easier to obtain.
The bread and butter for many small businesses — retail shops, restaurants, and service companies like hair salons and barbershops — is their relationship with a local bank.
State government has curtailed many of these businesses into suspending operations resulting in no revenue streams for many of these local companies. Gov. Asa Hutchinson and the Arkansas Department of Health are using emergency guidelines to order businesses to limit personal contact or large gatherings by practicing “social distancing.”
This form of self-isolation has led to shuttering working hours, remote work, moving operations to take-out or delivery versus in-person or in-store meetings. There have also been some businesses that have been told they must close indefinitely while health officials try to limit the spread of COVID-19. For nearly every business, it has reduced commercial activity significantly.
“We’re keeping our products and services available to our customers and closely monitoring developments in Congress and discussing options for customers to meet their changing needs,” said Davy Carter, Northeast Arkansas regional president for Centennial Bank.
Carter said there have been conversations with many of the bank’s customers who are trying to determine their options. The Payroll Protection Plan (PPP) and Emergency Injury Disaster Loan (EIDL) programs offer multiple options to help small businesses.
PPP allows qualifying businesses the opportunity to borrow money through a formula that includes payroll, benefits, lease or mortgage expenses and utilities that could be forgiven if guidelines are followed. The EIDL gives business low-interest loans with long terms for payback – up to 30 years – in some instances, plus an immediately qualifying $10,000 in cash, if approved.
PPP will be administered through financial institutions, while EIDL is a straight application through the Small Business Administration (SBA) website.
“We are doing everything we can to help determine potential solutions for our customers,” Carter said.
Cargill said Arvest is also reaching out to customers and helping them identify options.
“Those options include assistance regarding loan payments and/or extensions. We’re also making our customers aware of programs being offered by the U.S. Small Business Administration,” he said.
“In regard to some of our customers who are large employers, we are working with them to help them communicate with their employees about available relief options. That includes a special Arvest Assist personal loan with deferred payments for the first four months,” Cargill added.
With the coronavirus nowhere near its peak, according to health experts, it is impossible to gauge when there may be a return to normalcy. And that has everyone spooked.
“Hunkering down indefinitely is not a long-term plan,” noted one financial analyst.
Pakko, the economist, threw out a potential recovery period in his analysis of the COVID-19 impact, but it’s just an educated guess.
“The presumed scenario where economic recovery begins by the end of 2020 might prove to be overly optimistic. The declines in consumer spending and income may reinforce one another to create an even more dramatic downturn,” he warned. “The outlook will undoubtedly change as the situation develops, particularly when it comes to the impact of fiscal and monetary policy responses.
At present, however, it appears that a dramatic downturn in economic activity over the remainder of 2020 is unavoidable for the nation and Arkansas.”