How dire is the data?
Industry surveys paint dismal picture of downturn that may not pan out
A survey released by the Ohio Restaurant Association last week contained an eye-popping statistic: More than half of the 107 restaurants surveyed said they’re in danger of closing in the next year unless economic conditions improve.
Similarly dismal surveys have grabbed headlines as companies grapple with a coronavirus pandemic that has killed more than 160,000 Americans, including more than 3,700 Ohioans.
While economists agree the business climate is poor, they recommend taking such gloomy forecasts with a grain of salt.
“What people say is not always necessarily what they’ll do,” University of Cincinnati economics professor Michael Jones said. “And there’s incentive to make the situation seem worse than it is” to encourage government help.
Economic data can take months to collect, meaning the true extent of the downturn brought on by the pandemic isn’t yet known, cautioned economist Bill Lafayette, owner of central Ohio economic consulting firm Regionomics.
“Those numbers are based on a limited sample, and are subject to substantial correction later on,” he said.
But an unemployment rate eclipsing 10% and a substantial drop in consumer confidence certainly has harmed businesses, Lafayette added.
“They aren’t able to make the same volume of sales that they were able to make,” he said. “They’ve laid off people, but they still have rent costs and all the other overhead that they had before the pandemic.”
John Barker, Ohio Restaurant Association president and CEO, said surveys often are the best snapshot available, and soliciting input from business owners is a vital way to guide politicians when they discuss business aid.
“We don’t have to have data to see how many restaurants are closed and boarded up,” he said.
The Ohio Restaurant Association survey inspired headlines declaring that half of the state’s restaurants could disappear, but when you break down the data, “the results don’t necessarily translate into that headline,” said Michael Dedad, an assistant professor of economics at the University of Akron.
Participants can’t predict the future, and conditions could improve in the coming months, he said.
Dedad also stressed that around 20% of new restaurants close within the first year anyway, and the survey doesn’t say how many would have closed regardless of an economic downturn.
But while dire surveys might sound alarmist, “they probably aren’t that far off,” said Michael Goldberg, a professor in Case Western Reserve University’s Weatherhead School of Management.
Some restaurants profit from their patios, taking advantage of studies that show the coronavirus is less likely to spread outdoors. Outdoor dining will no longer be an option if the pandemic extends into the winter, Goldberg said.
“A lot of industries are lining up for government packages,” Otterbein University marketing professor Michael Levin added, and that’s why they offer bleak predictions.
But business owners say additional help is vitally needed.
Bob Szuter, who co-owns Wolf’s Ridge Brewing Downtown, said the brewery and taproom lost 75% of its business during the downturn.
The brewery owner is lobbying for a restaurant-focused aid package. The recently ended federal Paycheck Protection Program helped bars and restaurants, but the measure didn’t make up for a drop in customers, Szuter said.
The government’s decision to extend the deadline to spend the money was moot, he said, because most restaurants already had burned through it.
“The CARES Act (which included the Paycheck Protection Program) benefited a lot of industries, but tourism and hospitality was not one of them,” Szuter said.
“The thought was the PPP loans would keep restaurants afloat until things got better,” Goldberg said. “Now the concern is (the pandemic) is taking longer than expected, and the support isn’t lasting long enough.”
Drastic forecasts don’t apply to everyone. The Boomerang Room in Clintonville, which sells antique furniture, saw sales this year drop only between 15% and 20% compared to the same period last year, co-owner Karen Dilgard said. The shop benefited from loyal customers and fortuitous circumstances.
“It was fortunate that during the shutdown, the landlord for the shop was very flexible,” she said. “He said, ‘Pay when you can during this time, and you can defer the payment that you can’t make.’ We did catch up about a month ago.” pcooley@dispatch.com @Patrickacooley