The New York Times ran a story this week suggesting that the economic recovery is slowing and, in certain industries in certain parts of the country, even reversing. This makes sense given the resurgence of coronavirus cases in places like Texas and Florida and the more-cautious reopening measures being taken in other, less affected areas worried that a spike might be just around the corner. On Wednesday, New York City announced it would indefinitely postpone the resumption of indoor dining service, as New Jersey did a few days prior. California has also ordered restaurants and bars to close again in much of the state. It’s likely that in the coming weeks, we’ll see that spending in food and beverage service establishments has gone back into decline nationally.
There are two separate trends we may be seeing right now that are causing the economic recovery to slow, and they may be difficult to differentiate when looking at the data. One is the growing realization that it will be more difficult for certain sectors of the economy to return before the virus is fully tamed than previously thought. Some businesses were in a position to reopen quickly when allowed to do so; many of them have already reopened and part, or all of, their staff has returned to work. But other businesses will be disrupted persistently until there is an effective medical treatment for COVID-19, and some businesses will never reopen at all; it will necessarily take more time for workers and owners in those businesses to find new things to do. This has always been a reason not to get too complacent about the pace of the recovery and to ensure that the economy has adequate government policy support after the expiration of key CARES Act programs this summer. One thing we may have been learning in the past couple of weeks is that more of the hospitality industry will be in the persistently affected category than we had hoped, waiting for effective medical interventions before the industry can return anywhere close to normal, and with some establishments closing permanently in the meantime.
The other factor slowing the recovery is, of course, a worsening of epidemiological conditions in large swaths of the country. You can see the regional effects in data from OpenTable, which has been providing daily information on the number of diners seated in its member establishments since the start of the epidemic. Nationally, restaurants on the OpenTable network were about twice as busy at the end of June as they were at the beginning, with customer volumes down about 60 percent from the prior year instead of 80 percent. But there is significant regional variation: Restaurant traffic started falling in mid-June in Phoenix and in late June in major Texas metropolitan areas, even as it continued to rise (from a very low base) in northeastern markets. Importantly, customer volumes in Texas started falling before the state announced it would close bars and reduce restaurant capacity. In New York City, where only outdoor dining is permitted, OpenTable is recording just 6 percent of usual volumes — but that’s an increase from 0 percent at the start of the month, when restaurants were closed altogether.
Debates about when to impose and lift activity restrictions aimed at stopping the coronavirus are often framed as pitting economic growth against disease prevention, but this frame is wrong for two reasons. First, as the economists Austan Goolsbee and Chad Svyerson argue in a new working paper comparing economic activity in adjacent counties with differing coronavirus-related regulations, coronavirus-related drops in economic activity appear to be overwhelmingly driven by choices made by individual consumers and firms, not by government regulation. Regulations are important for determining the precise nature of economic activity — when you close indoor dining, people spend less in restaurants and more in grocery stores — but have relatively modest effects on the aggregate amount of economic activity. That is, if people are scared of getting sick, they will go out and work less and spend less, even if the government does not order certain kinds of businesses to close.
Second, when you permit activities that are especially risky from a virus- transmission perspective, all other activities become riskier than they would otherwise be as a result. If you open bars and people take that opportunity to hold coronavirus super-spreading events with groups of friends, there is a larger population of infected people out there who can give COVID-19 to people they meet at the office, or in a supermarket, or in a small gathering at a neighbor’s home. So while reopening bars would seem to be a way to let some people go back to work, generate some more sales tax revenue, and give a frustrated public another opportunity to blow off steam, it is likely that jurisdictions that reopened their bars hurt their economies by increasing the virus spread and making members of the public reasonably more afraid to engage in a wide variety of activities seemingly unrelated to bars.
The fact that better epidemiological conditions allow you to engage in more economic activity makes it especially crazy that so many conservatives who favor a faster economic reopening have been critical of mask mandates and dismissive of private choices to wear them — even sometimes saying, as Republican consultant Alex Castellanos did this week, that masks are a social and political affectation. There are some questions about whether masks are truly necessary in some settings. But widespread mask-wearing in public indoor spaces should make congregating indoors for economic purposes less hazardous and therefore make a wider variety of economic activities sustainable.
So while aspects of the recovery are at significant risk today, there is a road map toward a faster and more stable recovery: Wear masks, especially indoors, and don’t let people conduct especially hazardous indoor activities. It should have been possible to infer these lessons from events in Europe and New York in March and April, but it is good news that officials in the South and Southwest appear to be learning them now, however belatedly. Closing the bars should put us on a better track toward keeping other parts of the economy open, especially if people keep their faces covered.