Charlotte Business Buzz: COVID-19’s Economic Impact on Charlotte

Monday, August 31, 2020
Belk College Economist John Connaughton says region is faring better than much of the country

The nation’s economic downturn from COVID-19 has been all-encompassing, impacting all sectors of the economy at a pace not yet seen in American history. 

The Charlotte region is faring better than average, according to the May Barings/UNC Charlotte Economic Forecast. And in July, insurance giant Centene Corp. announced that it selected Charlotte’s University City for its East Coast headquarters, bringing 3,200 jobs, a $1 billion investment. 

John Connaughton, director of the Barings/UNC Charlotte Economic Forecast and Barings Professor of Financial Economics at the Belk College of Business, is providing some perspective. The interview was for Charlotte Business Buzz, a new podcast mini-series presented by the Belk College and the Office of Industry and Government Partnerships.  

First, can you give us an overview of where the economy was headed before the pandemic hit the United States? 

The National Bureau of Economic Research, the keepers of the business cycle information, is now saying that we entered recession in February. This may shock a lot of people because really the virus didn't get here, and we didn't start having mandatory shutdowns – stay at home orders – until March. So, if that's the case either one or two things were happening. 

One, is that the virus actually was starting to affect economic activity in February because we saw the unemployment rate tick up just a little bit. But, I think, we may have also had slowing in the economy that probably wouldn't have lasted. ... So, it's kind of an interesting situation in terms of where we were when this started. The economy was moving along but fairly slowly and then, of course, everything hit the fan.

Where does Charlotte and the state of North Carolina sit in this economic turmoil? 

Charlotte was probably not hit nearly as badly as a lot of the other parts of the country. In June, the U.S. rate was 11.1%.  … North Carolina's rate in June was 7.9%. So, we're on the low end of this. We were a full 3-plus points lower than the U.S. rate, and we were the 12th lowest unemployment rate of the 50 states plus D.C. 

So, overall the state has not fared nearly as bad as the average state in the United States and certainly not as bad as the really hard hit ones like New York, New Jersey and Massachusetts. 

Within that context, cities like Charlotte have been affected even less because our industry make up is such that more a higher percentage of our industry can effectively work from home. .. So, they're not losing their jobs, and their businesses are going on. 

How does the recent announcement from Centene affect the region’s economic outlook?

We're talking about industries and businesses that aren't terribly affected by COVID, and so we see industries continuing to expand, industries relocating. Industries like that are able to basically carry on business – not normally – but much less disrupted than say a local restaurant. So, what we're seeing is a continuation of where we were in 2019 in terms of Charlotte being able to attract finance, insurance, information, industries you can call those higher tech certainly higher skill requirements for the average employee in those industries, and that's a good thing. It's good to see that while it's slowed during COVID, it hasn't gone away.

"At the end of the day, the virus spreads the way the virus is going to spread, and we don't have nearly as much control over it as we would like to have."
John Connaughton
Director, Barings/UNC Charlotte Economic Forecast

From your research, what could be the ripple effect of high-profile job announcements like this? 

Very simple, you either have your mojo or you don't. … When people are continuing to say, yeah, this is the place we want to move our company for a variety of reasons:  quality of life reasons, cost of business reasons, our ability to hire. These are all positive things that, apparently, still exist in Charlotte, and when that stops being the case, you'll start to see these things. 

We've got to be very careful about that. I mean, that is something that is within the realm of public policy that we can maintain this as a good business destination. We've got a lot of a lot of competition in this state and outside this state. I mean certainly Raleigh MSA, the Durham-Chapel Hill MSA. Both of those offer incredibly attractive relocation sites for lots of companies. 

But again it's got to do with quality of life, cost of doing business, availability of talent, and don't overlook that ability to attract talent.

Charlotte recently placed as the no. 1 metro for STEM job growth index. Is this a sign that Charlotte’s economy is evolving?

You know, if we have this question 15 years ago, this was a banking town. Period, end of discussion. … The economic development recruitment organizations have worked very, very hard to try to change and focus on trying to diversify the economy in a way that makes us less susceptible to any one industry type recession and so that's a good thing. 

There has been a great deal of uncertainty through the whole pandemic. Is anything certain right now of how this might evolve or end? 

No, not at all. We're not in control here. We have to understand this. … My experience tells me that this thing pretty much beats its own drum and decides where it's going to go and how it's going to act.  Certainly people have an impact on that, but at the end of the day the virus spreads the way the virus is going to spread, and we don't have nearly as much control over it as we would like to have. 

Is there something positive you see coming out of this economic downturn? 

Actually, no. There's not been some kind of the bright side of things. ... At first, we thought that working at home seemed to be working pretty darn well, and lots of companies were even early on convinced that we probably don't need as much physical space to house our employees. … But as time has gone on, this, you know, you can continue doing the routine tasks in an isolation environment on your computer at home no problem. But innovation, that really gets hurt, and that's what they're finding. 

They're finding a couple of things. One is that developing new ways of doing things, new products, etc., requires person-to-person contact brainstorming. It's just not as effective even in a virtual meeting environment. 

Number two, they found that integrating new employees is really hard in a virtual world. At first we thought well you know this is going to change the way we work in a lot of industries, actually not so. I mean there are going to be some that are going to find that it works very well. A lot of folks that are strictly IT, they work from home just fine, but in a lot of other occupations where we use the computer frequently and a lot of our work is done on computer  there are other parts of our work that are requiring human interaction. That's been a change in this. 

I will say this, however, we have been seeing a slow erosion of brick and mortar stores over the last say five to 10 years as Amazon and Walmart, Target and everybody else ramp up their online presence. 

This has probably accelerated that more people got pushed into online ordering for retail purchases and become more comfortable with it. So, the rate of movement there has been going up kind of gradually and slowly. We've had a jump, and that jump is probably going to remain it's not it'll go back a little but it's not going to go back much even when people can go back to stores again. 

Note: The interview has been edited for clarity and space. The full interview is available through Charlotte Business Buzz 

About the Belk College of Business
The Belk College of Business at UNC Charlotte is North Carolina’s urban research business school. Accredited by AACSB International, the Belk College of Business offers outstanding business education at the undergraduate and graduate levels, along with executive education. The Belk College has been educating future business leaders for nearly 50 years. With more than 4,600 students, almost 160 full-time faculty and staff, and more than 33,000 alumni, the Belk College is one of the Carolinas’ largest business schools.