PROVIDENCE, R.I. (WPRI) – The Rhode Island economy has experienced two types of recoveries since the coronavirus pandemic started pummeling different industries in March 2020, according to a newly released report.
The R.I. Department of Revenue released a study Monday showing most customer-facing businesses – such as hotels and restaurants – were hit harder and have been slower to recover than many service-based companies, including hardware and electronic stores, along with online retailers.
Paul Dion, the state’s revenue analysis chief, explained that this type of economic bounce-back is known as a “K-shaped recovery,” meaning some industries see a rapid return to pre-recession levels while others straggle.
“Basically, everyone took a hit,” Dion said, pointing back to March 2020 when the first coronavirus infections and hospitalizations started appearing in Rhode Island, and then-Gov. Gina Raimondo started implementing various economic shutdowns and other public health mandates.
“The interesting part to me was what happened when reopening Rhode Island,” he added.
The fact that restaurant and hotels were hit hardest may not come as much of a surprise, as the state initially shut down all indoor dining, and many hotels simply closed because traveling came to a screeching halt. But the numbers are still staggering.
The Department of Revenue reports taxable sales at Rhode Island restaurants totaled $61.4 million in April 2020, down nearly 60% from the $1.5 billion in sales they reported during the same month a year earlier. In May 2020, hotels reported taxable sales of just $2.7 million, which was 93% less than the nearly $40 million made a year earlier.
“Those businesses were pretty curtailed not only because of government actions, but also because people were hesitant to go out and mix with others,” Dion said.
While going out came to a sudden stop, people who could work from home maintained their income levels, meaning there was still a lot of purchasing power in the state. Meanwhile, Congress was swift to pass federal aid that put stimulus checks into the pockets of hundreds of thousands of Rhode Islanders, including many that didn’t necessarily need them to cover lost income.
The stay-at-home orders, coupled with the suddenly boost in income, translated into a boon for certain businesses, especially in the realm of home improvement, Dion explained.
“There was a big shift because vacation wasn’t going to happen, so people looked into their backyards and said, ‘We could do so many things here,’” he said.
Unlike most business sectors, hardware stores never saw a decline in taxable sales in Rhode Island. The Department of Revenue report shows taxable sales stayed above baseline levels throughout 2020, reaching a high of 28.6% in June. Consumers spent $121 million at hardware stores that month, up from $94 million a year earlier.
Electronic sales also did quite well, following an initial decline, while taxable sales from grocery stores remained relatively level throughout the year. The grocery numbers in the report, however, are somewhat more difficult to interpret, as sales of unprepared foo such as packaged meat aren’t taxable in Rhode Island.
But there was an initial surge of grocery sales at the beginning of the pandemic, which Dion chalked up to the high volume of sales on taxable items, such as toilet paper.
“The big ones, needless to say, were toilet paper and paper towels,” he said, as consumers scrambled to buy cleaning products at the start of the pandemic out of fear that they would run out.
The state-commissioned study, created by the Virginia-based company Chainbridge Software LLC, was somewhat limited in the scope of what it examined. The report didn’t include a host of industries that don’t have consistent taxable sales, such as law firms, financial institutions and manufacturers, as year-over-year comparisons are more challenging to discern.
The report also didn’t examine any workforce issues, although it did highlight other reports by the Brookings Institution and the White House that noted the recovery has disproportionately hurt low-wage workers.
“We know that we are living through a K-shaped recovery, in which those at the top are continuing to thrive, while those at the bottom are struggling to make ends meet,” the Chainbridge analysts wrote, citing the White House report.
A similar trend was seen during the Great Recession, when low-wage jobs – many connected to hospitality and tourism – were the slowest to bounce back in Rhode Island. But Dion said that might not be the case this time, as household balance sheets are in far better shape than after the financial crisis of 2008, when many people were holding onto underwater mortgages.
But he does wonder what some industries – namely the restaurant industry – will look like once it rebounds completely. The shift toward at-home working, along with the rising popularity of holding business meetings over Zoom rather than in a restaurant, might shift how people approach eating out.
“Do I think the restaurant industry will recover? Sure, but the players will not be the same anymore,” he said. “The composition of the industry is changing, and I think depending on where you live in the state, you’re already seeing it. Some of those businesses have closed and they’re never going to reopen.”