How Does Arizona’s Economic Recovery Really Look? Unusual Markers Paint a Unique Picture

Article originally posted on AZ Central on August 31, 2021

Arizona’s economy has nearly recovered all of the jobs lost to the COVID-19 pandemic, significantly outpacing the national average.

But that recovery is uneven: Some industries, like travel and tourism, remain far below where they were prior to the new coronavirus sweeping the country in early 2020. A variety of service industries are struggling to hire workers.

The partial recovery is apparent in some of the uncommon economic markers that University of Arizona economics professor George Hammond began tracking at the start of the pandemic. Hammond believedthat more traditional economic indicators, like the jobless rate, were insufficient to track a multipronged assault on the economy.

Among those non-traditional metrics, such as travel statistics, restaurant seating data and movie-ticket sales, Hammond sees some areas still struggling.

“We have made a lot of progress in terms of recovering from the pandemic shock,” said Hammond, who directs the Economic and Business Research Center in the Eller College of Management.

As of July, Arizona had replaced 93.7% of the jobs lost during the pandemic, compared with just a 74.5% recovery nationwide. The state should replace all of the jobs lost sometime between September and November, depending on how fast things continue to rebound, according to Hammond.

But that doesn’t mean everyone who had a job in February 2020 is back on the payroll, and Hammond’s COVID-19 economic metrics point out the weak spots.

“We are still in the midst of this,” Hammond said. “With the delta variant cases nationally and here in Arizona, it depends what happens in the next month or so. That has the potential to slow things down again.”

Arizona’s unemployment rate in July of 6.6% also was higher than the national average of 5.4%. Both the state and national rate declined that month.

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Travel, hospitality sectors still down

Among the most glaring among his curated statistics is the Transportation Security Administration’s weekly travel throughput, a measure of the number of people passing through TSA checkpoints in airports.

It has rebounded substantially from a year ago when the pandemic was raging and flights were cut nationwide. But passenger counts remain down about 20% compared with pre-pandemic levels.

“TSA throughput has been stuck at about 14 million passengers for the last six weeks,” Hammond said. “That’s kind of the story with the other indicators.”

Hotels and motels are reporting occupancy that’s within 10% of their pre-pandemic levels, but that’s not the entire story, either, he said. The travel sector remains far below every other portion of the state’s economy when looking at the number of people employed.

In February 2020, before the pandemic’s impact, Arizona had about 338,000 people working in the leisure and hospitality sector, including hotels, motels, restaurants and bars, according to the Bureau of Labor Statistics. The most current figures from the federal government show the state is still down about 27,000 jobs in that area.

Compare that to business services, construction and manufacturing sectors, all three of which have rebounded to within about 1,000 jobs of their pre-pandemic level.

“We were hit first. We were hit worst, and we will most certainly be among the last to recover,” said Kim Sabow, president and CEO of the Arizona Lodging and Tourism Association.

When Arizona began taking action to combat the spread of the virus in March 2020, it was the high season for state tourism, with visitors in town for spring break as spring training baseball, among other attractions.

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“The ripple effect of that was massive,” Sabow said. “The massive layoffs in our workforce are still a huge presenting problem to us right now as we attempt to recover. A massive workforce shortage crisis is really hampering our efforts and our recovery.”

This spring, before any COVID variants began to chip away at the recovery, domestic leisure travel was rebounding. But the big-money group meetings and business travel “has nowhere near recovered,” she said.

“We are nowhere near 2019 levels,” she said, adding that it could be 2023-24 before the business-travel sector gets back to 2019 figures, bringing the rest of the tourism industry with it.

Employers see worker shortages

Like other sectors hard hit by the pandemic, hotels and motels are struggling to find workers, Sabow said.

“I’m talking to general managers on a daily basis. It is all hands on deck at this point. Some general managers are joining housekeeping, stripping beds, working the front desk, doing whatever it takes,” Sabow said.

The pandemic has made it difficult for some people to return to work because they must care for children or family members because of changes brought on by the pandemic. But Sabow also suspects many workers simply found jobs in different sectors, such as call centers, and are reluctant to return to the service industry.

Many properties could take on more guests, and open more of their facilities, if they could hire more employees, she said.

Restaurants and bars are seeing largely similar impacts, according to Steve Chucri, president and CEO of the Arizona Restaurant Association.

“We still have our challenges as it relates to supply chain and labor,” Chucri said. “We saw people leave our industry altogether.”

Chucri and Sabow both said Gov. Doug Ducey’s plan to offer bonuses to people who stopped receiving jobless benefits and returned to work was a good plan, but neither blamed jobless benefits for keeping large swaths of people out of the workforce.

Economists are split on whether more generous jobless benefits approved by Congress for the pandemic have been a disincentive for people to return to the workforce.

Arizona has seen new claims for jobless benefits fall to below pre-pandemic levels of about 2,000 new applications a week, but more than 100,000 people were continuing to get benefits as of Aug. 21.

Benefits for many workers displaced by the pandemic have already expired because of the time limits on the payments, and Arizona stopped providing the additional $300 a week to unemployed workers in July.

“That’s going to run out at some point,” Chucri said of whatever impact the benefits have had on keeping people out of the workforce. “We are hopeful as we march forward here in 2021 we’ll get more people to return to our workforce.”

Some permanent losses

About 1,000 Arizona restaurants and bars permanently closed during the pandemic, which is one reason the workforce hasn’t fully recovered, Chucri said.

In March 2020, the industry had a daily payroll of about $14 million in Arizona, and that fell to about $2 million “in a matter of maybe 36 hours” Chucri said of the pandemic’s early days.

But for those that were able to pull through, business is brisk in Arizona.

Hammond tracks seated dinners, as reported by OpenTable, which has 20,000 properties volunteering data nationwide.

Arizona has shown more diners at restaurants compared with the prior year since April, while the statistics nationwide are weaker.

The OpenTable data show, for example, that the week of Aug. 21 saw Arizona restaurant seatings 7.5% ahead of the same week the prior year. But the U.S. at large saw a 9.5% year-over-year decrease the same week.

Taxable sales in the restaurant and bar sector were $1.46 billion in July, according to the Arizona Department of Revenue. In raw numbers and not accounting for inflation, that’s better than 10% ahead of the same month 2019.

“I didn’t expect to see this kind of a rebound, if you want to call it that,” Chucri said. “If you would have told me we’d be seeing the strong numbers we are seeing here in 2021 I’d have said you are way off base.”

But whether that rebound lasts depends on how reluctant people remain as the pandemic lingers, he said.

“I know we’ve got this delta variant out there and people are remaining cautious, as they should be,” Chucri said.

Movie theaters a weak spot

Other data Hammond tracks show less promising trends.

Movie box office sales, for example, remain well below pre-pandemic levels as studios have cut the number of new releases and people remain hesitant to sit in theaters.

Box office sales are still about 50% below 2019 levels, according to data Hammond has compiled from IMDbPro.

The week of Aug. 19, box office sales were about $107 million. The same week in August 2019 had sales of about $203 million, the data show.

There also were only 49 releases that week compared with 113 the same week in 2019.

But the hit to movie theaters has not affected the entire amusement industry, which includes gyms, sporting events and other entertainment. Taxable sales in that sector, like with restaurants, were higher in July 2021 than July 2019.

“That is really back to where it was in January 2020, but I think movie ticket sales might be a little more unique,” Hammond said. “You are going to an enclosed space and sitting next to people you don’t know. That may be a little slower to rebound. I suspect outdoor venues for events are doing better.”

People remain entrepreneurial

Another indicator Hammond tracks is high-propensity business applications recorded by the U.S. Census Bureau.

This subset of weekly business applications shows the number of new companies that anticipate hiring employees (compared with, say, an owner-operated business).

Because this metric tracks new business formations, before wages are paid, it gives a preview of the economic activity expected to take place soon. And it’s highly positive.

For the week of August 14, there were 630 such applications in Arizona. There were just 460 in mid-August 2019.

“It is not unusual for those to rise in a downturn,” Hammond said. “As one business fails, people try again. Particularly during the pandemic, it was driven by people seeing that restaurants, travel and tourism didn’t have the same future they thought, so they transitioned to a new industry.”

He said the figures show Arizona residents responding to the new economic landscape.

“I view it not so much as an indicator of the state of the economy, but an indicator of the dynamism that is going on in the economy, sometimes forced by really bad things going on,” he said.

“They responded to a huge economic shock by seeking out new businesses and new business opportunities. There absolutely is a positive take on that.”