According to the state’s economist, it might take two years for the Mississippi economy to completely recover from the COVID-19 recession despite it being the shortest one on record.
Now that numbers for now-concluded fiscal 2020 are in, comparisons can be made between COVID-19 recession and the Great Recession that lasted from December 2007 until June 2009.
Darrin Webb is the state’s economist for the Institutes for Higher Learning. He told the Northside Sun that he believes this recession is likely to be a lot shorter than the Great Recession, which lasted about 18 months before recovery began. According to Webb, the COVID-19 downturn will be the shortest recession on record.
He said the consensus for most economists is that the COVID-19 related recession began in March and ended in May, but that the biggest difference between the two was that 2020 had a much deeper dive when it comes to economic activity (11.3 percent decline vs. a 3.3 percent decline during the Great Recession).
The business community agrees with Webb, according to research from accounting firm Ernst & Young Global Limited. According to a March survey of corporate executives called the Global Capital Confidence Barometer, 54 percent think that the recovery will be a slower one that extends in 2021.
Webb thinks the commonality between both recessions is that the recovery time could take nearly two years for gross domestic product (which is a measure of all economic activity) levels to rebound to pre-recession levels.
When GDP is down, the state’s tax revenues suffer as well. Mississippi collects revenue from use, sales, income and corporate taxes, among others, and most of these revenues go to the general fund, which is the source for most agency appropriations.
Lawmakers use a revenue estimate every June as a guide to construct the upcoming budget. The revenue estimate for fiscal 2021, which started on July 1, is predicted to be $5.69 billion, or about $86.2 million more than the previous year, a miniscule 1.53 percent increase. In comparison, the original estimate by the Legislative Budget Office in December was for $5.965 billion in revenue, a 4.61 percent increase.
The biggest difference between the two recessions is how they look on a graph of tax revenues, with the Great Recession being a more gradual slope and the COVID-19 one dipping into a great V-shaped chasm.
During the COVID-19 downturn, the state’s revenues started to feel the sting in April, when revenue collections were down $298 million from the same time last year, a 33.86 percent decrease. By May, the decline started to lessen as collections for the month were down $28 million or 5.89 percent.
June’s numbers were slightly improved over the previous month, with only a $13.9 million dip in revenues as compared to the same timeframe the year before. That represented a 1.79 percent decline from June 2019.
Webb said he expected retail tax transfers and personal income to decline during the month of June, which he credits stimulus checks, the Paycheck Protection Program and additional unemployment benefits for keeping revenues afloat. He also said employment numbers were also better than expected.
According to the Mississippi Department of Employment Security, the total non-farm employment was up by 25,100 jobs or 2.3 percent in June as compared to the previous month.
Unlike the COVID-19 related recession, the state’s general fund tax revenues during the Great Recession didn’t collapse immediately, but started a slow decline that hit bottom in February 2009, when revenues fell nearly 9.2 percent from the same time in 2008.
As for the rest of 2020, Webb says there are signs that the recovery is starting to lose steam, with credit and debit card transactions slowing along with seated dining.
“These trends remind us of the tenuous nature of the recovery,” Webb said. “Rising COVID-19 cases creates uneasiness about getting out and the government’s response can likewise restrict economic activity.
“Even if the recovery continues, I expect revenues will suffer. Also, If I am correct that the government action has helped buoy the state’s revenue during this crisis, as of now, much of that will not be present in fiscal 2021.”