In wake of virus, economic crisis ripped through Minnesota all week

Sales disappear for a Golden Valley graphics company, and layoffs begin.

A hairstylist in Eden Prairie learns her salon is closing, and immediately cancels a home repair project.

A contractor's phone stops ringing in south Minneapolis.

In the past week, millions of moments liked these added up to a shocking new reality: The coronavirus pandemic has spawned a full-blown economic crisis in America and a certain recession.

"This is a natural disaster that is essentially hitting the U.S. economy all at once," said Neel Kashkari, president of the Federal Reserve Bank of Minneapolis.

Unlike a flood or hurricane, no one knows when it will end.

Millions of Americans out of work in the span of days. Public life shut down indefinitely. Financial markets slashed by more than a third. In Minnesota, 116,920 people, or 4% of the state's workforce, sought unemployment benefits last week.

Jessica Commers, a stylist at a salon in Eden Prairie, was outside her house Tuesday night going over a job to replace her siding with a contractor when an e-mail beamed into her phone: Her workplace was shutting down.

"I'm not sure I'm going to be able to do this anymore," she told the contractor.

She had been planning to spend about $20,000 on the job. Not now. She and her husband also canceled a trip to North Carolina, where they planned to celebrate their fifth anniversary.

The primary breadwinner for her family, Commers is now home with her 2-year-old son, vacuuming the car in the garage, wondering how long social distancing will last and whether she has the savings to get through.

"It could be two months before I even get to do hair, and then our savings could be gone," she said. "It feels ominous."

The cruel paradox is that the measures needed to slow the spread of the coronavirus are precisely what's causing an economic collapse.

Encouraging signs emerged last week in Asia, where the virus first hit in early January, as the number of new cases fell sharply. But it will be well into next year before any vaccine can be widely distributed and the health threat diminishes.

"I can't handicap it," Kashkari said of the economic downturn. "It's going to be driven by what the virus does, and our health care system's ability to manage that, and nobody knows."

Business was booming in January and February for Pictura Graphics, a company with 45 employees that makes visual displays for retailers, events and exhibits at trade shows.

Two weeks later, retailers are closed. Golf tournaments, concerts and trade shows are canceled. Sales evaporated, and layoffs started.

"Never seen that before in my life — it was just turned off," said Paul Lilienthal, the owner of Pictura.

It doesn't look like it's coming back on. Public events through April are canceled. May cancellations are coming in. All the people who make a living from those events — venue workers, audiovisual firms, display companies, caterers — are out of work.

Lilienthal is alarmed. He's worried his customers won't survive, and he's worried about the employees he laid off into a market with suddenly no jobs.

"It's going to dwarf 2008 and 2009," Lilienthal said. "I think it's going to come faster. What if we're at 10% unemployment 30 days from last Tuesday when we shut all the hospitality down? That's frightening."

The shutdown of almost all customer-facing business disables the engine of the U.S. economy.

"Consumers have been the driving force, so to have a negative shock to consumption is a really hard thing for the economy to weather," Minnesota state economist Laura Kalambokidis said.

Demand for household staples and food remain high as people bombard grocery stores, so workers in warehouses and the broader food supply chain are busy. But the discretionary economy is tanking.

Jennifer Schellenberg, a Twin Cities bartender, estimates 75% of Minnesotans employed by restaurants and bars are out of work.

"Front of house is completely gone. There's no need for us at all. And back of house is going to be sparse," Schellenberg said.

Restaurant workers are applying for unemployment benefits, but that's "peanuts" for a tipped worker with a mortgage or rent to pay, Schellenberg said.

"Just a week is going to be devastating to every tipped worker in Minnesota," Schellenberg said.

What everyone wants to know, and nobody does, is how long it will last.

A federal government plan to combat the coronavirus warned that a pandemic "will last 18 months or longer" and could include "multiple waves," resulting in widespread shortages that would strain consumers and the nation's health care system.

The best estimates for a publicly available vaccine are 12 to 18 months.

"Do we have to lock things down until we get a vaccine?" Kashkari said. "I don't think that's realistic. But the reason markets are so volatile right now is because they don't know. They're just all guessing, flopping around trying to search for answers."

The immediate public health concern is slowing the rate of infection so that hospitals and intensive care units aren't overwhelmed by the number of seriously ill patients. Hospitals in northern Italy have not been able to handle the influx, and the death toll in that country surpassed China's on Thursday.

China's rate of infection is slowing, and Kashkari said global firms in Minnesota have told him business is starting to resume there, but it's not certain the virus won't flare up again as Chinese public life resumes.

"Flattening the curve in a sense extends the economic hardship, but the point of it is so we don't overwhelm our health care system. We have to err on the side of saving lives," Kashkari said. "But if in fact the vaccine is a year, 18 months, away, and if in fact ... 50% or 70% of people are going to end up getting the disease, then you have to ask yourself, other than overwhelming hospitals, is the quarantining going to buy us much? And we just don't know yet."

Dan Hanson, owner of Hanson Remodeling in south Minneapolis, said he was getting two or three inquiries from potential customers every day, which is typical, up through March 13.

"This week we have had zero," he said Friday.

He and his 20 employees are booked for the next three months, but that's starting to wobble. Two projects were put on hold in the past few days. "It's definitely shifting," he said.

He's running his business from his home, trying to think of ways to adjust — perhaps by focusing on maintenance for a while — and help people who need it. He's hopeful that if the government can establish clear testing protocols, and give people more information, life and commerce can return to normal.

"I do think this is a World War II moment, where we need to galvanize," Hanson said. "The alternative is really dark and really chaotic."