April 9, 2020

Louisiana in the Bullseye of the COVID-19 Economic Crisis

Ross DeVol, Dave Shideler and Jonas Crews

New weekly unemployment insurance claims have come down slightly from last week's record-setting levels. Looking at the unemployment insurance data and data on confirmed COVID-19 cases, Louisiana is being severely impacted from both a health and economic perspective.





For the week ending April 4, 2020, another 6.6 million workers filed unemployment insurance (UI) claims, as economists anticipated.1 Last week’s claim volume results from massive backlogs in initial states hit by the coronavirus, such as California and New York, as well as the fact that the industries impacted by the economic shutdown employ large numbers of people. Further, last week’s numbers should include data for those states which instituted shelter in place orders later than other states, like Florida, Texas and Georgia.2 Additionally, last week’s claims also includes the self-employed and contract laborers, who, thanks to the CARES Act enacted on March 27, 2020, are now eligible for temporary UI benefits.

COVID-19 Infection Rates

The map below plots the COVID-19 new cases per 100,000 persons as of April 4. New York, New Jersey, Louisiana, Massachusetts, Connecticut, Michigan, Pennsylvania, Illinois, Rhode Island and Idaho comprise the 10 states with the highest rates of infection, 3 of which are in the Heartland. Though Michigan has a higher total number of confirmed cases of COVID-19 (14,225), Louisiana leads the Heartland with an infection rate of 197.5 cases per 100,000 for reasons described in more detail below.



Unemployment Claims Filed

The state with the highest unemployment claims last week is California, with over 925,000 claims, followed by Georgia (over 388,000 claims), Michigan (almost 385,000 claims), New York (354,000 claims) and Texas (nearly 314,000 claims). While unemployment claims in some states are related to COVID-19 outbreaks, the relationship between COVID-19 cases and unemployment insurance claims continues to deteriorate. Across the Heartland region, 2.3 million claims were filed last week, which represents 37 percent of claims filed. After Michigan and Texas, Ohio (224,000 claims), Illinois (201,000 claims) and Indiana (134,000 claims) round out the 5 highest level of new claims in the region.



Georgia realized the largest gain in UI claims filed, with a 190 percent increase in claims, followed by Arkansas (120 percent), Arizona (49 percent), Mississippi (45 percent) and North Dakota (36 percent). Growth rates in unemployment claims are generally much lower than in previous weeks, which could suggest that unemployment numbers are stabilizing and the effects of the economic fallout may be nearing its peak. Additionally, 21 states realized declines in unemployment claims between the weeks ending March 28 and April 4. Pennsylvania, Colorado, Florida, Wyoming and Massachusetts realized the greatest declines of 23 percent or greater in claims filed.

Cumulative Unemployment

To understand which states might be most affected by the economic shutdown, we calculate the percent of employment that has filed for unemployment insurance. In the chart below, we realize that states dependent on workers unable to work remotely (e.g., those in tourism and manufacturing industries) are realizing the highest share of employment loss. For example, Hawaii and Nevada, two relatively small states (in terms of their economies) are both highly dependent upon travel and tourism industries. It’s not surprising, then, that they have the 2nd and 5th highest shares of employment filing for unemployment insurance (roughly 1 of every 6 workers in both states). States whose economies are dependent on manufacturing also realize high shares of employment filings for unemployment claims, like Pennsylvania and Michigan.



Louisiana’s Story

To better understand how the coronavirus pandemic has brought the world economy to a near halt, we take a closer look at Louisiana, who leads the Heartland in infection rates, has the 2nd highest share of employment seeking UI in the Heartland, and has seen roughly 275,000 workers file new claims for UI in the past three weeks.

Louisiana, and New Orleans, in particular, will be among the most hard-hit geographies in the nation from the economic fallout attributable to COVID-19. The sources of the economic dislocations are multifaceted. Some are based upon unfavorable demographic characteristics and others relate to the industry composition within the state.

Elevated comorbidity of chronic diseases, such as obesity, COPD, diabetes, heart disease and other cardiovascular diseases, leave residents of Louisiana more at risk for contracting COVID-19 and experiencing high death rates. Louisiana ranks 37th on the State Chronic Disease Index.3 In New Orleans, higher population density is a contributing factor as well. High reliance on the travel and tourism industry places New Orleans and several other locations in the state at risk due to that sector shutting down. Additionally, high dependence on the oil and gas industry, including exploration and support activities, places Louisiana in double jeopardy.4 Further exacerbating the deleterious economic consequences for the state, New Orleans is a major port.

COVID-19 Cases and Deaths in Louisiana

The New Orleans metropolitan area has been a hot spot for the coronavirus, and more disconcerting, among those with the highest death rates in the nation.5 According to the Johns Hopkins Coronavirus Resource Center, as of April 7th, Orleans parish had 4,942 cases and 185 deaths, while Jefferson parish recorded 3,922 cases and 137 deaths.6 The high rate of new cases, and still on an exponential growth trajectory, suggests that New Orleans will need to maintain stay-in-place orders. Combined with the high death toll, will likely cause its economy to remain on lockdown substantially longer, further harming the employment and wages of its residents. Baton Rouge and Shreveport, both with substantial travel and tourism concentration, have elevated cases of COVID-19.

Travel and Tourism in Louisiana

New Orleans had 17.7 million visitors that contributed $8.7 billion in direct spending to its economy in 2017. Bourbon Street is a main tourist attraction and many business conferences are held in its major hotels. The French Quarter, Saint Louis Cathedral, and jazz venues are among its biggest tourist draws. These visitations have virtually ceased. Among the major spending categories are lodging ($1.77 billion); entertainment and recreation ($1.14 billion); food and beverage ($2.05 billion); shopping ($0.89 billion) and transportation ($2.67 billion).7 Travel and tourism-related employment account for 18.0 percent of jobs in the New Orleans-Metairie metro area, the third-highest share among the 20 Heartland states. The ripple effects of travel and tourism on the metro area economy are substantial. Its vast array of hotels, restaurants, amusement, recreation, museums and travel accommodation services are fundamental to income generation for New Orleans’ workers. New Orleans is a major disembarkation point for cruise ships that have been devastated by the coronavirus. Thousands of employees in these travel and tourism sectors have witnessed reduced hours and are filing unemployment insurance claims. Reports suggest that there will be a huge jump in new claims due to the challenges in processing the surge in applications.

Shreveport-Bossier City and Houma-Thibodaux are highly dependent upon travel and tourism too; it accounts for 13.6 percent of total employment in both.8 Shreveport is home to Caesars License, Eldorado Hotel and Casino, Boyd Gaming and other gaming and hotel operations. Houma’s figures include water transportation. At 13.3 percent, travel and tourism’s share of employment in Hammond is substantially above the U.S. average. For the state of Louisiana, there were 47.1 million visitors and $17.5 billion in visitor spending witnessed in 2017. Overall, Louisiana is among the top ten states for dependence upon travel and tourism.9

Oil and Gas in Louisiana

The second source of economic disruption is occurring in Louisiana’s extensive oil and gas sector. Louisiana is pummeled by the collapse in demand for oil due to the mitigation efforts to stem the spread of the coronavirus and a supply shock generated by the surge in shale oil production in the U.S. Thus far, Saudi Arabia and Russia have been unable to reach an agreement on cuts in production in order to stabilize oil prices which fell as low as $20 per barrel. Discussions continue and further talks among OPEC and major producers are scheduled for April 9. Most oil industry experts believe that to stabilize oil prices above $30 per barrel, an agreement to cut at least 10 million barrels is necessary.10

Louisiana does not have large shale deposits but has benefitted from expanding supply through new construction of new liquified natural gas (LNG) export terminals and the Louisiana Offshore Port for crude oil. Lake Charles will witness a weaker demand for its LNG products exports, which has been a significant source of economic growth. Offshore Gulf drilling activity could plummet as it is associated with high costs. Houma-Thibodaux and Lafayette have considerable exposure, as well. For example, in Houma, support services for mining are nearly 30 times more important than for the nation. Halliburton is a major employer and has announced layoffs. Oil exploration pays $109,000 per year in Houma. Shell canceled a large LNG terminal renovation project in Calcasieu Parish based upon uncertain market conditions related to the coronavirus pandemic.11 Lafayette, in many ways, is more closely tied to oil than Houma; support activities for mining are 32 times more concentrated than for the nation and employ 14,800 in the metro area. Substantial employment is in the equipment leasing, which largely supports the oil and gas industry. Baton Rouge is being impacted as ExxonMobil reduced its refining capacity by 20 percent.

While not as dependent upon oil and gas as in the past, mining is three times more important to Louisiana’s economy than for the nation and support activities for mining are five times that of the U.S. overall. Additionally, oil and gas jobs account for about 6 percent of tax revenues in Louisiana. Industry experts expect a 60-70 percent decline in jobs at independent drillers and service companies over the remainder of 2020.

Louisiana Exports

New Orleans’ economy is one of the most dependent upon exports in the nation. Agricultural products, chemicals and a range of other manufactured products are barged down the Mississippi and shipped abroad through its massive port. New Orleans was hoping to benefit from the Phase One trade deal with China. Asia receives $10.8 billion in exports from New Orleans. With the global recession, the stimulus from trade that the state was looking for will be diminished.

Hope That Stimulus Funds Will Mitigate Economic Decline

While most other states in the Heartland are not as dependent upon tourism as Louisiana, they do share some characteristics (and consequences) such as dependence on energy industries (including oil and gas, wind and biofuel production) and agricultural exports. From this perspective, as Louisiana goes, so goes the Heartland. However, we may begin to see some signs of recovery as SBA has begun issuing Payroll Protection Program loans, and Pandemic Emergency Unemployment Compensation, which includes a $600 fixed supplement to weekly payments, should begin paying out. Coupled with the direct payments to households, estimates by Capital Economics suggest that these programs likely mitigate a significant portion of the economic effects from the shutdown, and some households may even earn more than their previous earnings.12

Endnotes

  1. https://www.businessinsider.com/us-weekly-jobless-claims-report-preview-economist-forecasts-unemployment-coronavirus-2020-4

  2. https://finance.yahoo.com/news/coronavirus-covid-weekly-initial-jobless-claims-april-3-163825214.html

  3. DeVol, Ross and Armen Bedroussian. (2007, October). “An Unhealthy America: The Economic Burden of Chronic Disease,” Milken Institute.
    https://assets1b.milkeninstitute.org/assets/Publication/ResearchReport/PDF/chronic_disease_report.pdf

  4. DeVol, Ross. (2020, March 31). “Coronavirus Hits Already-Vulnerable Heartland Oil And Gas Industries Hard,” Heartland Forward. http://heartlandforward.org/coronavirus-hits-already-vulnerable-heartland-oil-and-gas-industries-hard

  5. Casselman, Ben and Patricia Cohen. (2020, April 3). “A Widening Toll on Jobs: “This Thing is Going to Come for Us All,” New York Times. https://www.nytimes.com/2020/04/02/business/economy/coronavirus-unemployment-claims.html

  6. https://coronavirus.jhu.edu/map.html

  7. https://www.neworleans.com/articles/post/new-orleans-tourism-visitation-and-visitor-spending-break-records-in-2017/

  8. DeVol, Ross. (2020, March 24). “Coronavirus Regional Economic Impacts and Policy Responses,” Heartland Forward. http://heartlandforward.org/coronavirus-regional-economic-impacts-and-policy-responses

  9. Nichols, Thomas. (2020, January). “Louisiana,” Moody’s Analytics, retrieved April 7, 2020.

  10. Eaton, Colin and Jon Hilsenrath. (2020, April 5). “ Texas Gets Double Punch From Coronavirus and Oil Shock. ‘There’s No Avoiding This One,”’ Wall Street Journal. https://www.wsj.com/articles/texas-gets-double-punch-from-coronavirus-and-oil-shock-theres-no-avoiding-this-one-11586113727

  11. Bridges, Tyler. (2020, March 31). “Dual Crisis Take Toll on Louisiana Oil Industry,” The Advocate (Baton Rouge). https://www.houmatoday.com/news/20200331/dual-crises-take-toll-on-louisiana-oil-industry

  12. Hunter, Andrew. (2020, April 8). “UI Expansion to Cushion Blow from Layoffs.” Capital Economics U.S. Economics Update.