The economic damage inflicted by the coronavirus pandemic is likely to reshape New Mexico’s economy for years, killing smaller companies, and expanding the gap between high- and low-wage earners, university researchers told lawmakers Wednesday.
Even if state employment bounces back by the end of 2024, they said, the jobs available may be different, with more of the state’s workforce at large employers rather than at small businesses that didn’t survive.
“Some things you can’t just reverse,” said Jim Peach, a professor emeritus in economics at New Mexico State University. “The world is going to be different. Our lives will be different.”
He and Jeffrey Mitchell, director of the Bureau of Business and Economic Research at the University of New Mexico, delivered a rather sober presentation Wednesday to members of the Legislative Finance Committee.
The committee met in Cloudcroft, though members of the public were not allowed to attend in person and many presenters testified remotely.
Peach and Mitchell encouraged state legislators to view the pandemic-triggered recession as a longer-term change to New Mexico’s economy, not just a temporary storm to be weathered. Each expressed doubt that the oil and gas industry – a critical source of state revenue – will recover quickly.
“This is not a simple shutdown and then over with,” Mitchell said.
It may take about four years for New Mexico employment to bounce back to 2019 levels, he said. Metropolitan areas should recover a little more quickly, Mitchell said, while the oil patch will take longer.
But the pace of recovery will depend on a host of factors – the spread of COVID-19, the length of state-imposed business closures, how long it takes consumers to feel safe enough to go out again, and the availability of a vaccine.
Both university researchers said some jobs will survive better than others. Higher-paid professionals who can work from home are better protected from the economic pain, they said, while lower-paid frontline workers in retail or at small businesses are most at risk.
“The consequence,” Mitchell said, “is that we’re likely to see a widening of income gaps.”
The change, he added, would likely boost demand for health care and social assistance programs.
An overriding factor in the near term, Mitchell said, will be the federal response to the pandemic, including whether financial relief is provided to local and state governments, and unemployed workers.
The $600 weekly benefit added to people’s unemployment compensation has disproportionately helped New Mexico’s economy so far compared to other states, Mitchell said, because wages are generally low. But the federal benefit is set to expire July 31, Mitchell said, removing a cushion that has helped protect New Mexico from the full impact of the crisis.
“What we’re seeing now may not be the worst,” Mitchell said.
Peach said the loss of that federal benefit will wipe out some jobs as consumer demand weakens.
He also warned legislators to prepare to consider tax increases or dramatic spending cuts next year as the economic downturn continues.
“Things in the oil industry are not OK,” Peach said. “You’re going to be forced to find some alternative revenue sources.”
Bernadette Johnson, vice president of Texas-based Enverus, an energy tech company, told members of the LFC on Wednesday that a recent increase in oil prices had helped stabilize the industry.
“We’re seeing signs the market is in the early innings of recovery,” she said.
Johnson also said many oil companies would likely avoid bankruptcy if oil prices remain in the $40 per barrel range, though that could change if prices fall once again.
Economic Development Secretary Alicia J. Keyes offered a touch of optimism. She said more companies are considering moves to mid-size states such as New Mexico, rather than New York and California.
“The silver lining of this is we have never been busier,” Keyes told lawmakers.
Democratic and Republican legislators, meanwhile, expressed frustration about New Mexico’s business closures, and whether the state can do more to help local restaurants and companies.
“I cannot express the frustration, the concern and – quite frankly – the fear that businesses in New Mexico have because they cannot open,” Sen. William Burt, R-Alamogordo, said.
Rep. Harry Garcia, D-Grants, said restaurants are taking a beating with the reimposed ban on indoor dining.
“They’re asking how are you going to help us,” he said, “and we don’t know how to answer that question.”
John Bingaman, chief of staff for Gov. Michelle Lujan Grisham, said the state’s reopening plan is based on standards suggested by federal officials and other experts.
Eating inside at restaurants is prohibited, he said, because it’s the only indoor business activity that cannot be done while wearing a mask. He added that he hopes the reimposed restrictions will be just a temporary pause before the state moves forward with another round of reopenings.
“We hope this period will be brief,” Bingaman said.
Keyes said the best way for people to support the economy is by wearing masks, washing their hands, engaging in social distancing and taking other steps to reduce the spread of COVID-19, allowing business restrictions to be relaxed.