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BBA Economic Digest: A Sign of Resilience

A Sign of Resilience

At a time of great uncertainty, Americans are rushing to form new businesses — one positive sign for an economic recovery. Applications to start businesses in the United States are at their highest level in more than a decade, according to data from the US Census Bureau. For the week ending October 3, the most recent data available, requests were up nearly 40 percent from the same week one year ago. This is an encouraging trend. After a recession, you want a portion of displaced workers to feel confident they can take advantage of pro-business conditions like low interest rates and strike out on their own. "This has been one of the primary catalysts of resilience of the US economy throughout its history,"  Joseph Brusuelas, chief economist as RSM US Brusuelas told CNN Business. The work-from-home era is opening up new business opportunities and providing flexibility for would-be business owners. The ability to borrow cheaply is a boon, too. Goldman Sachs observed that some of the surge may be attributable to a backlog in applications from the lockdown period. Even so, "the data suggest a much more positive outlook for new business formation than after the last recession," the investment bank said.

The Continuing Saga

Wisconsin officials last week denied $3 billion in subsidies to Foxconn, saying the Taiwan-based company had failed to create enough jobs at a new touch-screen factory. Surprised? Through the many twists and turns of Foxconn’s troubled Wisconsin project, it is clear that the company is not building the promised 20 million-square-foot Gen 10.5 LCD factory specified in its contract with the state. Even before President Trump attended a groud breaking ceremony in June 2018, Foxconn said it would instead build a far smaller factory than it had proposed. The discrepancy has only grown since then, and attempts to renegotiate that contract have so far failed. The Wisconsin Economic Development Corporation rejected Foxconn’s application for tax incentives on the grounds that Foxconn had not carried out the Gen 10.5 LCD factory project described in its original contract. WEDC also noted that Foxconn had failed to employ the minimum number of people needed to get subsidies. My take: This has been an economic development horror show. There are lessons here to be learned.

Rethinking Unemployment

A unemployed person is one who is looking for a full-time job that pays a living wage but can't find one. If you accept that definition, then the true unemployment rate in the U.S. is a stunning 26.1 percent, according to an important new dataset shared exclusively with "Axios on HBO." The official unemployment rate is artificially depressed by excluding people who might be earning only a few dollars a week. It also excludes anybody who has stopped looking for work or is discouraged by a lack of jobs or by the demands of child care during the coronavirus crisis. If you measure the unemployed as anybody over 16 years old who isn't earning a living wage, the rate rises even further, to 54.6 percent. For Black Americans, it's an incredible 59.2 percent. The official definition of unemployment can be traced back to the 1870s, when a Massachusetts statistician named Carroll Wright diagnosed what he referred to as "industrial hypochondria". By restricting the "unemployed" label to men who “really want employment,” Wright managed to minimize the unemployment figure. Wright went on to found the Bureau of Labor Statistics, and he brought his unemployment definition with him. To this day, to be officially counted as unemployed, you need to be earning no money at all, and you need to be actively looking for work.

Repurposing Dead Malls

Hundreds of America’s malls are expected to shut in coming years, as retail, restaurant and movie theater closures pile up, and more people favor shopping on the internet over heading to the store.

Turning dead malls into fulfillment centers, apartment complexes, schools or medical offices could mean massive writeoffs in property values, according to a new Barclays report. Turning a zombie mall into an e-commerce warehouse or a residential complex could reduce the value of the property anywhere from 60 to 90 percent, the firm said. The firm predicts 15 to 17 percent of U.S. malls will need to be repurpsed into other uses longer term.

My take: Sometimes there is little alternative other than tearing it down and starting over.

People Are Indeed Moving

The anecdotal evidence of temporary moves during the coronavirus pandemic has been building: tourist towns overrun with newcomers, elite Manhattan neighborhoods emptied by those who left for vacation houses, young people across the U.S. living with their parents. Now new data from the U.S. Postal Service puts a figure behind the people who may have made short-term moves: Over 15.9 million people have moved during the coronavirus. Temporary moves were up 27 percent between February and July 2020 in the U.S. compared to the same period last year. But the media company MYMOVE also shows that permanent changes of address increased by just 1.9 percent year over year. Most people left big cities, relocating to smaller and midsize locales. According to MYMOVE, six of the 10 cities with the highest net gain of movers were in Texas, with Katy, Richmond and Frisco dominating the list. Many tenants relocated to the suburbs, while others opted for popular vacation destinations. The urban exodus is squeezing businesses and driving down rent prices — San Francisco has suffered the heaviest blow, with apartment rents falling by as much as 31 percent.

The Game Has Changed

Just as Covid-19 has changed how economic developers do their jobs, so, too, has it changed how consultants do business. Here at BBA, we are helping EDOs and companies cope with the virus and the economic carnage that it has caused. It’s not a bad time to be a consultant, but it's probably not a great time to become one. A deeply uncertain economy and travel restrictions have made it difficult for aspiring consultants.

The shift to online consulting (We're currently engaged in virtual SWOT analyses and site readiness projects) comes with pros and cons. There's nothing like spending time in a community and kicking the dirt to get a feel for a place. But thankfully stakeholders have been incredibly candid with me during off-the-record, one-on-one Zoom calls. Our virtual approach no doubt has saved organizations money because they're not paying for our travel costs, which is something that they do appreciate. In short, we all adapt and go forward and make it work.

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