SWIFT& PAINFUL
A snapshot of Chicago’s economy six months into the pandemic shows that the impact has been ...
The coronavirus pandemic quickly inflicted damage on Chicago’s economy as government shutdowns and social distancing restrictions forced business slowdowns and closures. During a six-month period, hundreds of thousands of area jobs were lost, consumer spending dropped 43%, and more than half of temporary business closures became permanent.
Despite hopes to “get back to normal,” the recovery has been slow, and it’s unclear what any long-lasting changes are, said Jose J. Vazquez-Cognet, an economics professor at the University of Illinois at Urbana-Champaign.
“When a businessperson and a consumer don’t know what to expect, they can’t make decisions very well,” VazquezCognet said. “That’s the worst thing for the economy.”
Here is a snapshot of the economic impact of the virus on the Chicago area over the past six months.
Unemployment
Metropolitan areas around the country are bearing a greater share of coronavirus-induced unemployment and Chicago is no exception. The city’s unemployment rate has remained higher than the national average throughout the pandemic.
“When a businessperson and a consumer don’t know what to expect, they can’t make decisions very well.”
—Jose J. Vazquez-Cognet, an economics professor at the University of Illinois at Urbana-Champaign.
Experts say that’s because cities like Chicago imposed stringent coronavirus restrictions in an attempt to control the virus among concentrated populations and where many jobs are high-contact, such as in retail, dining, and entertainment industries.
The impact of job losses in Illinois has been uneven. In July, the rate of unemployment for women was 13% higher than the rate for men, while the unemployment rate for Black people was 33% higher than the rate for whites, according to Illinois Department of Employment Security data.
“Women and people of color are overrepresented in the industries that have been most impacted by the pandemic, and this is more so the case in Illinois than nationwide,” said Alan Berube, an expert on metropolitan policy at the Brookings Institute.
In Chicago, the hospitality industry has been most affected, with a nearly 27% drop in jobs from July 2019 to July 2020. During the same time period, education and health services lost 4.7% of jobs and transportation lost 5.4%, according to Labor Department statistics.
Job openings
In August, Chicago-area job postings were down 18% compared with the prior year, with one big exception. The tech sector, which includes all jobs at tech-focused companies, saw a 13-fold increase, according to the online job posting site Glassdoor.
The companies responsible for the bulk of that growth are Amazon, Instacart, Google, Groupon and Grubhub.
The tech sector has widely benefited from stay-at-home orders that forced workers and consumers to move their activities online.
Business closures
Between May 1 and Aug. 31, 4,993 Chicago-area businesses closed temporarily or permanently, according to the crowd-sourced business review platform Yelp.
As shutdowns wore on, more temporary closures became permanent. As of Aug. 31, more than 60% of Chicagoarea business closures were permanent, with restaurants and bars accounting for about a quarter of those, Yelp said.
“Without business, most restaurants can’t survive for more than a few months,” Vazquez-Cognet said. “They are the first to really be hurt because their profit margins are so low.”
As of Aug. 31, Yelp found 638 closed restaurants in Chicago. Several wellknown places like Blackbird and Bonci’s Wicker Park location have closed for good.
Vazquez-Cognet believes the restaurant industry will come back eventually, unlike many retail stores, which he said are unlikely to reopen because of a shift in consumer habits toward online shopping.
Retail stores accounted for 18% of area business closures since March 1 and included big names like Pier 1, J.C. Penney, Nordstrom and Brooks Brothers, which closed some Chicago-area stores.
Housing
A contracting economy normally leads to lower home prices, such as during the 2008 recession. But U.S. home prices are on the rise.
Cheryl Young, a senior economist with online real estate database company Zillow, attributes the anomaly to a lack of inventory, pent-up demand, and a desire for more space.
But while the housing market has run hot, demand for rental properties has cooled.
The difference between home and rental markets is emblematic of what economists call a “K-shaped” recovery: Homeowners making up the top right portion of the K have fared well throughout the recession relative to renters who make up the lower right portion of the K and who are often low-income and essential workers, Young said.
Consumer spending
Spending by Chicago-area residents remains about 15% below precoronavirus levels and is below the national average during the pandemic. Consumers cut back spending in most areas including on restaurants, merchandise, entertainment and transportation.
But after hitting its lowest point in March, spending has increased month over month, according to a data tracker developed by economists at Harvard and Brown universities. The tracker combines anonymous, seasonally adjusted data from private companies, including credit and debit card processors, to measure spending by consumer ZIP code.
“The economy comes back when people feel good about spending money, and the best way to tell how people feel about the economy is consumer spending,” he said.
Beginning in March, nearly every industry — from retail to health care — saw substantial drops in consumer spending, with transportation and hospitality companies faring the worst. There was one exception: Grocers saw an expansion to an 80% high over pre-pandemic levels during that time period.
Commercial construction
The construction industry is shaping up to be a bright spot for Chicago’s economy, said Daniel Pomfrett, the vice president of Cumming Corp., a project and cost management firm that has studied the construction market.
“We’re starting to see signs of life,” Pomfrett said, referring to Chicago’s commercial construction volume. “When I look at the whole country, the Midwest is well-positioned to come out of COVID strong, stronger than other states.”
That’s partly because Gov. J.B. Pritzker and other Midwestern governors classified construction as an essential industry in shutdown orders, Pomfrett said.
Still, industry watchers are waiting to see how businesses react to the pandemic. If companies invest in larger office spaces for social distancing, commercial construction could see solid growth. However, if companies switch to a work-from-home model, there may be a drop-off in demand for construction.