States easing business constraints early got modest boost

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States that lifted business restrictions at the start of the COVID-19 pandemic benefited from a pickup in economic activity, but those gains were limited or short-lived as other states often caught up within a month, according to a study by Moody’s Analytics.

The aggressive states have achieved a longer-lasting employment advantage, but even in this critical category, the other states have narrowed the gap, as Moody’s analysis shows.

“I don’t see that the states have created so much additional growth through aggressive reopening,” says Adam Kamins, economist at Moody.

At the same time, early reopening states didn’t pay a significant price by lagging the rest of the country after having to reintroduce restrictions – like locking down indoor restaurants or lowering the capacity of a company – due to fluctuations in COVID.

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With increasing vaccinations and decreasing infections, both the health and economic crises triggered by the virus will decrease significantly by the summer. The US economy is expected to be fully open by July 4th, causing a swift return to normal in all 50 states. Almost a third of the population is fully vaccinated, and that proportion is steadily increasing, according to the Centers for Disease Control and Prevention.

This year, the nation is projected to see the strongest economic growth since 1984, driven by both rising vaccinations and trillions in government aid to households and businesses.

However, along the way, some states created controversy by risking higher infection rates in the name of limiting economic damage.

“The (states) that are most energetic about the opening are doing tremendous business, and that is what these numbers are about,” then-President Donald Trump said last June.

Who is back to normal faster?

Moody’s looked at the 15 states that lifted all restrictions by the end of March 2021 – Arkansas, Florida, Georgia, Iowa, Idaho, Missouri, Mississippi, Montana, North Dakota, Nebraska, Oklahoma, South Dakota, Tennessee, Texas, and Wyoming. This group has also placed fewer restrictions than the pandemic began a year ago and eased the curbs earlier during the crisis, Kamins says.

Moody’s compared its economic performance to that of the more cautious states on the basis of a “back-to-normal” index that includes measures such as small business hours, employment, offers for home sales, restaurant seating, and the percentage of people employed back to the offices.

With an index that stood at 100 at the end of February 2020 before the start of the crisis, the aggressive states have maintained a lead that has kept them around 5% on average over the rest of the country. Their lead widened during the store reopening in Spring 2020 and narrowed during the COVID surges last summer and late fall, which hit them harder. Both at the beginning of the crisis and more recently, the more cautious states caught up with the aggressive ones within 30 days, although at other times the bolder states had their advantage longer.

As of last June, the index has ranged from 80 to 89 in the states that lifted restrictions early and from 74 to 84 in the rest of the country.

An easier way to compare the two groups of states is to look at jobs. As the aggressive states primarily placed fewer restrictions, their total employment at the bottom of the crisis in April 2020 was 12.1% below its high in February 2020, compared with a 15.5% decline in the other states.

A dealer plays a game of roulette at the Hard Rock Casino in Atlantic City, New Jersey on July 2, 2020.  This was the first day the casino was allowed to reopen during the coronavirus pandemic.

A dealer plays a game of roulette at the Hard Rock Casino in Atlantic City, New Jersey on July 2, 2020. This was the first day the casino was allowed to reopen during the coronavirus pandemic.Wayne Parry / AP

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Since then, however, total wages for the more cautious states have increased by 10.6% and for the aggressive states, despite their earlier reopening, by only 9.2%, according to figures from Moody’s and the Department of Labor. This has enabled the more cautious states to partially fill the gap. They are now 6.5% below their pre-pandemic employment compared to 4% in the aggressive states.

The return to the office still lingers

One reason the aggressive states have had limited advantage is that in both groups of states, most employees have still not returned to their offices, says Kamins. This has further suppressed sales in restaurants, stores, and other outlets in the downtown area.

“Many companies take it upon themselves to be more cautious than elected executives,” wrote Kamins in a report.

Similarly, he says, the removal of restrictions by a state does not necessarily mean that all residents will be comfortable returning to their normal shopping, dining, and travel activities.

Tom Jackson, regional economist at IHS Market, said he generally agrees with Moody’s study, but adds that other factors have also affected economic and employment growth, such as the oil price crash that wiped jobs in Texas at the start of the pandemic . This could make it difficult to isolate the effects of a reopening.

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He also noted that states like New York and New Jersey, which had higher infection rates and were slower to relax restrictions, “had problems restoring those lost jobs.”

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A work area in the YouTube headquartersJefferson Graham

Now that vaccinations are spreading and states reopening across the country, the discrepancy between the aggressive and cautious states is likely to narrow further, Kamins says. And the aggressive states may be more likely to face stumbling blocks because they have more residents who are reluctant to get vaccinated.

For these states: “The road to normalcy could lead to fluctuations in speed in the coming months,” wrote Kamins in the report.

Released 4:07 UTC May. 6, 2021
Updated May 4:07 UTC. 6, 2021


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