Kansas City’s economy is rallying. But it will take years to regain jobs lost in COVID

Re-post from the Kansas City Star.

By: Kevin Hardy

The Kansas City economy has rebounded quicker than expected but experts predict it will be years before the region regains the thousands of jobs lost during this year’s coronavirus pandemic.

So far, the metro has regained more than half the 125,700 jobs lost at the height of economic lockdowns, according to an analysis from Frank Lenk, an economist at the Mid-America Regional Council.

“But it’s going to be slower going from here on. That’s true here and nationally,” he said.

Specifically, Lenk predicts the region’s jobs recovery won’t be complete until the first quarter of 2023.

There are still encouraging signs: jobs have bounced back here faster than the nation at large — in juxtaposition to the region’s sluggish recovery following the Great Recession. Companies, particularly those in e-commerce, continue to be drawn to the region’s central location.

But scores of cash-strapped small businesses here and across the nation are teetering.

And the local recovery has so far been uneven: middle class and upper-income workers have largely been unaffected while those working in low-wage jobs continue to face widespread unemployment.

“We call them essential workers but in the past we treated them more like disposable workers,” Lenk said. “The tendency will be for the recovery to make the disparities in income and opportunity even wider.”

Lenk’s analysis, completed on behalf of the regional economic development effort KC Rising, shows arts, entertainment, recreation, food service and accommodation industries continue to suffer the most. From the first quarter of 2020 to the second quarter, employment in those sectors was cut nearly in half.

And this current recession, fueled by a public health crisis, is unlike any other. The ongoing recovery will be heavily impacted by unpredictable factors such as rates of infection, effectiveness of treatment and the development of a successful vaccine.

“Until people feel confident in resuming normal, in-person experiences, we won’t get a full recovery,” he said. “So it’s absolutely true that part of the recovery is going to follow the path of the pandemic.”

While metro job losses officially peaked at 125,700 earlier this year, Lenk noted that as many as 174,000 people were affected, including the self-employed.

And even as the wider economy inches forward, many small businesses here continue to struggle.

As of late September, the number of Kansas City-area small businesses open had dropped by more than 15% compared to January. Small business revenues here were down by 20%, according to Opportunity Insights, which is tracking the economic recovery under the direction of researchers at Harvard University.

“We are definitely down. Our numbers are a little scary,” said Jennifer Bricker-Pugh, who owns LuLu’s Boutique in downtown Mission.

On one hand, she feels lucky that her clothing store remains open. But Bricker-Pugh, who is also president of the Mission Business District, said widespread uncertainty has many shop owners along Johnson Drive anxious.

“The whole foundation is so volatile as far as the economy right now. I can’t say whether we’re strong enough to survive it or not,” she said of the area. “I think we’re all having that same sense of, ‘Uhh, this could get ugly.’”

‘SCARY’ TIMES FOR SMALL BUSINESS

The pandemic has stripped many small businesses of the ability to plan. That’s true for LuLu’s Boutique, a consignment shop specializing in designer clothes.

“It’s scary. You cannot plan for months ahead because we just don’t know what’s going to happen,” Bricker-Pugh said.

In March, April and May, LuLu’s stayed busy, moving its sales to Facebook and Instagram as the shop stayed closed. As things reopened, business improved in June.

But by July, sales dropped way off and haven’t improved much since.

With many gatherings canceled and office workers sent home, there’s less demand for cocktail attire and office wear. Now, LuLu’s mainly tries to stock loungewear, tops and dresses.

“I’m not buying skirts, pants or jeans. Those are nonstarters,” she said. “They just don’t sell right now.”

Bricker-Pugh, who bought the shop in 2018 from previous owners, runs the store on her own. And she’s now thankful that it only provides supplemental income for her family and doesn’t have to support the livelihoods of employees.

Still, it was particularly frustrating to watch the apparent surge in traffic at a nearby Target and other big box stores, which were allowed to remain open as small shops like LuLu’s were forced to close this spring.

“Owning a restaurant or a retail shop is such a rollercoaster even in the good times,” she said. “If you don’t shop small, some of these local fantastic restaurants and retail shops that are your favorites will not last.”

KCM_Lulusboutique012
Jennifer Bricker-Pugh, right, who owns Lulu’s Boutique, a high end consignment shop in downtown Mission, chatted with a customer on a slow Thursday afternoon. Shelly Yang SYANG@KCSTAR.COM

As many professionals work at home, they have cut back spending on restaurant lunches, coffee runs and dry cleaning.

“I need people back at work,” said Gene Sobbe, general manager of Grandview-based Pride Cleaners, which operates 41 stores across the Kansas City area.

Aside from walk-in business, the company generally keeps busy picking up and dropping off dry cleaning at corporate offices, insurance companies and law firms. That demand has vanished as many offices sit empty.

To cut costs, the company has cut store hours and reduced hours among some of its 240 employees, Sobbe said. While it’s been difficult, he said he feels optimistic. He sees more cars out on the road on his daily commute. And business is picking up, ever so slowly.

“We’re still down considerably, but it’s showing signs of creeping up,” he said. “We’ll weather the storm. We’ll make it work.”

Collectively, small businesses are responsible for half of all American jobs. And they are the ones hit hardest by the current economic conditions, said Sheri Gonzales, vice president of the Civic Council of Kansas City, which is comprised of the CEOs of some of the region’s biggest companies.

She said major questions about how small businesses will rebound remain, especially as the weather turns and less business can be conducted outdoors.

“It’s important to invest in them now and help them through this time and downturn,” she said. “Many of them are the fabric of our community and that will be harder to rebuild than to sustain.”

AN UNEQUAL RECOVERY

In the years following the Great Recession, Kansas City lagged behind in job growth as the U.S. economy enjoyed its longest ever economic expansion.

So Gonzales, who also leads KC Rising, is upbeat about the current outlook predicting our area will rebound from the coronavirus quicker than the nation at large.

“It’s actually fairly optimistic,” she said. “There’s a number of folks at our table that are doing significant hiring and are already reporting that they’re back in the black and on a growth trajectory. So, there’s a lot to be hopeful about in Kansas City.”

Still, she said the outlook isn’t entirely rosy.

In recent decades, Kansas City’s black-white wealth gap has only widened, not closed. And so far the economic recovery has further exacerbated racial inequalities, Gonzales said.

“There is absolutely an unevenness of impact,” she said. “It’s uneven by industry and it’s uneven by individual.”

But Gonzales said there are ways the city can improve the outlook for those workers who remain on the sidelines.

Some jobs, in retail for instance, are likely never coming back to previous levels. So job training will be important. So too will narrowing the digital divide. She said the region needs to invest in digital literacy and broadband affordability as more work moves to virtual means in the future.

In the meantime, though, thousands of people remain unemployed or underemployed across the region. The Kansas City metro still has an unemployment rate of 7.3 percent, according to the Bureau of Labor Statistics. That’s more than double the February unemployment rate of 3.4%.

More than 80,000 people were still counted as unemployed in August.

“It’s just hard. It’s always something. Every time something happens it’s like the poor people are the first to take the blow,” said Richard Franklin.

He works as a janitor at a large Kansas City law firm. But with the professionals at home, his hours have been reduced. He went two months with no work at all and is now working only 12 hours a week cleaning.

He’s picked up part-time work campaigning against Missouri’s Amendment 3 ballot initiative for Missouri Jobs With Justice. He blames political leadership in Washington and Jefferson City for the state of the current economy.

It’s left him struggling to pay monthly bills, maintain his car and buy new clothes for growing kids. He said the $1,200 stimulus checks provided only a short-term boost. And he said he knows many people who are being left behind, regardless of what experts say about the economy.

“They want it to look like things are back to normal,” he said. “But our families are struggling.”

COMPANIES CONTINUE KC EXPANSIONS

Even with widespread uncertainty about the future, construction remains a bright spot in Kansas City’s economy.

According to the KC Rising projections, jobs in construction will grow by 10% between 2020 and 2025. New homes and apartment buildings are going up on both sides of the state line amid a boom in home sales.

Likewise, companies continue to unveil plans for major redevelopments and expansions.

New owners of the Sprint Campus announced plans last month for a massive expansion and update of the sprawling office complex in Overland Park. Likewise, Urban Outfitters recently unveiled plans for a new distribution center near the Kansas Speedway that could employ some 2,000 workers.

“Our project pipeline frankly is as robust as it’s been in the last handful of years,” said Tim Cowden, president and CEO of the Kansas City Area Development Council, which works to recruit businesses to the region.

And he said existing employers are “confident about what the future holds for their businesses here.”

Economic developers have been touting Kansas City’s central location as a prime spot for warehousing, distribution and logistics operations for years. And the area continues to recruit such businesses this year, particularly in e-commerce.

Online pet store Chewy Inc. plans to bring up to 1,600 jobs to a new distribution center in Belton. Home Depot is contemplating a new industrial facility in south Kansas City to help fill same-day and next-day deliveries. And Pretzels Inc. plans to soon build a 146,000-square-foot production facility in Lawrence.

Kansas Secretary of Commerce David Toland said the state’s pipeline of economic development leads is up 27% over last year. He said state leaders were currently working to lure 221 projects to Kansas.

In 2019, the state counted $1.32 billion in capital investments from new and existing businesses. So far this year, that figure has already topped $1.65 billion, Toland’s office said.

The secretary said he recently spent time in Washington, D.C., with his family. There, he noticed more business closures and less economic optimism than he sees across the Kansas City region.

“The feel is more positive here,” he said. “It doesn’t mean a lot of businesses aren’t struggling, but it is demonstrably better in the Kansas City metro.”

WILL NORMALCY EVER RETURN?

With the lowest earners hit the hardest by the pandemic, the lack of economic stimulus threatens to slow the recovery, both here and across the country.

Another economic stimulus fizzled in Washington last week as President Donald Trump on Tuesday called off negotiations on coronavirus relief legislation.

That news, which sent the stock market into upheaval, came the same day that Federal Reserve Chairman Jerome Powell warned that further aid was needed to avoid household insolvencies and business bankruptcies.

Expanded unemployment benefits and federal aid to small businesses were key to the robust rate of recovery early on, said Nathan Mauck, an associate professor of finance at the University of Missouri-Kansas City. So far, the region’s rebound has been rapid, but not complete, he said.

In some ways, the fallout of the financial crisis more than a decade ago followed a predictable trajectory. But this recession is different.

Aside from the virus itself, public health officials and local government leaders can heavily influence the local economy going forward as they consider restrictions, Mauck said. A wave of small business closures could still wreak havoc on the local economy and the presidential election is only adding to business uncertainty.

“It makes it really hard to guess what’s going to happen next,” said Mauck, who studies the local economy.

But there’s an even larger question looming: how much has the pandemic fundamentally changed the economy of our city and country?

It’s clear that many employers will explore virtual work strategies for employees well into the future. It’s unclear when consumer demand for travel and big events will rebound. And businesses are still grappling with major questions about long-term real estate needs in corporate America and retail.

“The best question and the biggest question is: What are we looking at long term?” Mauck said.

But many people are fatigued by the virus and the many ways it has reshaped our lives.

“They’re ready to get back out and enjoy life again,” said Jon Barton, one of three partners at Liberty’s WoodChux axe throwing venue.

The business, which recently expanded with an Excelsior Springs location, has started to see traffic improve. Barton thinks fear of the virus is waning as therapeutics improve and many experts predict a vaccine is forthcoming.

“I definitely see people getting out spending money more than they were three months ago,” he said.

With few county health restrictions, WoodChux has implemented enhanced sanitation measures and will space out parties upon request. Its employees wear masks and encourage the same of customers, Barton said.

With similar businesses closing across the country, Barton is worried about the entertainment industry at large, including businesses like theaters and arcades. But so far, WoodChux has weathered the current downturn.

Aside from a rebound in foot traffic, he said the business has also started to book some company holiday parties for later in the year.

“We’re not anywhere close to shutting down,” he said.

But things aren’t back to normal yet.

Barton looks forward to the days when he walks into a packed house on a Friday or Saturday night. There’s nothing like the sounds of laughter when bachelor and birthday parties stream in.

“I hope we can get back to that soon.”

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