When the financial crisis hit in 2008, the blow wasn’t quite as bad for Massachusetts as for other parts of the country thanks to its formidable mix of industries — from higher education to health care, from technology to life sciences.
This time will be different.
A month into what may prove to be the most devastating economic collapse since the 1930s, the region’s world-famous hospitals and universities find themselves too crippled by COVID-19 to provide a soft landing. White-collar professionals, another bulwark of the state economy, are also bracing for the worst. With Europe and China also in trouble, Massachusetts won’t be getting much of a lift from exports or international travelers.
The Great Recession, triggered by a mortgage meltdown and recklessness by banks and investment firms, required the government and Federal Reserve to put the financial system on life support. By contrast, the coronavirus pandemic in a matter of weeks has inflicted far more damage: an abrupt and intentional shutdown of a broad swath of the economy, 22 million people out of work, trillions of dollars in stock market losses.
The country is in uncharted waters. But this much is clear: In Massachusetts, this downturn will be particularly painful and the recovery slower than usual, according to business leaders and economists.
Consider how the virus is upending the higher-education sector, where employment barely budged during the financial crisis a decade ago. Hundreds of thousands of students were sent home in March, and some universities are planning for the possibility they won’t return to Boston in the fall if the virus has not been contained or a vaccine found.
Even Harvard, the world’s richest school, is freezing salaries, forgoing new hires, and may delay some capital projects.
“There is no doubt that pre-vaccine we’re all going to suffer together. That was not true in 2008 to 2010,” said Boston University president Robert A. Brown.
If students don’t come back until next spring, the economic fallout would be enormous, not only from another wave of layoffs on campuses, but also from a depressed rental housing market and lost spending from students and parents who no longer will be eating in restaurants, shopping in stores, or staying in hotels.
Furloughs and pay cuts are also hitting another mainstay of the Massachusetts economy and its biggest employer with about 650,000 workers: health care.
COVID-19 has eviscerated hospital revenue by forcing the postponement of routine care and elective surgeries, which is how hospitals and doctors make most of their money. The health care system instead is flooded with coronavirus patients, who tend to be poor or old, and on Medicaid or Medicare, which pay at a lower rate than private insurers. As unemployment skyrockets during the pandemic, hospitals will also have to contend with more people switching to government-sponsored insurance, which will lower provider payments.
“Historically, recessions have been good for medicine overall,” said Dr. Eric Dickson, chief executive of UMass Memorial Health Care in Worcester. “That’s just not the case with this one.”
Dickson said revenue at his hospital is off 35 percent in April. So far he has resisted furloughs, hoping there will be a pent-up demand for services in the second half of the year. “It is a little bit of a gamble on our part,” acknowledged Dickson, but “people are working really hard.”
Dr. Steven Strongwater, CEO of Atrius Health, instituted temporary salary cuts and furloughs across its network of more than 1,100 physicians, nurses, and other clinicians that includes Harvard Vanguard Medical Associates.
While Strongwater intends to restore pay at a later date, he thinks it will take some time for business to return to the levels prior to COVID-19. He also anticipates the shutdown could lead to a wave of closures and bankruptcies of community hospitals, nursing homes, and doctor practices.
“We probably won’t see a settling out until 2021 at the earliest,” he said.
Healthy hospitals and universities, along with the other major institutions of Boston’s landscape, from museums to tourist hot spots to sporting events, create a spillover effect that helps sustain many businesses in the area.
Garrett Harker’s restaurants benefit from their proximity to Boston’s colleges and health care institutions, as well as another major economic driver that isn’t reopening soon: Fenway Park.
“Those three things are gone. I have nothing right now in terms of micro drivers of the neighborhood,” said Harker, a partner in seven restaurants, including Eastern Standard and Island Creek Oyster Bar in Kenmore Square, and Row 34 in the Seaport. “When I look back at 2008 ... we were definitely insulated.”
During the last recession, from December 2007 through June 2009, the state’s mix of knowledge-based jobs helped moderate the pain of steep layoffs in construction, manufacturing, and retail. The health care industry actually added 22,300 jobs, an increase of 4.6 percent, while the education sector held steady. Losses among business and scientific professionals were proportionally smaller than the state’s average. Unemployment peaked at 8.8 percent at the end of 2009, compared with 10 percent nationally.
This time around, the Massachusetts Taxpayers Foundation forecasts unemployment approaching 18 percent by the end of June, with 570,000 jobs disappearing in recent weeks. Many of those jobs will be recovered by next spring, but total employment won’t return to pre-crisis levels until 2022, the foundation predicts.
Moody’s, the Wall Street rating agency, ranked Boston seventh among major metro areas in terms of exposure to the virus’s economic impact, based on the high number of COVID-19 cases here, an aging population, urban density, and its international travel and financial services sectors.
“Boston typically does weather recessions better than the rest of the country because it has industries that are less cyclical,” said Mark Zandi, chief economist at Moody’s Analytics. “In this particular case, probably not. … It’s going to be a slog.”
Another big sector that will feel a large hit from the pandemic is professional and business services, which includes accountants and lawyers, consultants, computer industry professionals, and scientists.
When their clients suffer, they suffer.
Kacvinsky Daisak Bluni, an intellectual property law firm with an office in Boston, had planned to add a couple of attorneys but instead put in a hiring freeze. One worry: Research and development work that is the mainstay of intellectual property legal business is often cut during bad times.
“We have been contacted by some of our bigger clients to expect a slowdown in coming months,” said Scott T. Bluni, a senior principal, adding that the firm is in good shape to weather the storm.
The life sciences industry is another stalwart of the Massachusetts economy that is bracing for short-term pain. The giant medical device maker Boston Scientific cut wages this month for many of its 36,000 employees, while a number of biotechs have postponed or halted costly clinical trials for experimental medicines.
Hospitals, where drug trials typically take place, are overwhelmed treating coronavirus patients, and drug firms are loath to run trials where participants could be exposed to the contagious disease. When trials are interrupted or postponed, it can delay applications for drug approvals and the ability to market the sliver of medicines that win approval.
Boston is also a financial services hub, and bear markets are never good for the industry. The city is one of the top three metro areas most dependent on Wall Street, according to Moody’s. The others are New York City and the Bridgeport, Conn., metro area.
When financial markets decline, so does the revenue from managing clients’ money at major employers such as Fidelity Investments and Putnam Investments. That can translate into lower bonuses and potential layoffs, which threaten consumer spending and state tax collections.
“Instead of snap layoffs, the more likely scenario for the next six months or so is a hit to compensation,” said Kevin Quirk, a principal at Casey Quirk, a unit of Deloitte Consulting that advises the asset management industry.
To be sure, volatile markets can be a plus for fund managers as their clients turn to them for advice. Fidelity said recently it would accelerate plans to hire thousands of advisers and other workers to meet increased demand.
Massachusetts has the highest per-capita income among states, fueled in part by stock-based compensation among the professional class and income from investment portfolios. When the markets are down, so too is that money, and all the spending power it delivers to the local economy, from eating out, to furniture shopping, to taking in a show.
Ordinarily, the technology sector should ride out a recession better than most. But in this downturn, “there is not an industry that tech doesn’t sell into,” said Maia Heymann, cofounder of the Cambridge venture capital firm Converge. With nearly every industry hit by the slowdown, she said, “that uncertainty is pausing purchasing.”
Heymann said investors and their companies must reset financial goals because the pandemic has upended business plans. “Your muscle memory is growth,” she said. “We have to train a new set of muscles, which is sustained survivability.”
That may translate into less money invested in early-stage startups, a contributor to job growth in the local tech sector.
“Right now we don’t think we’re going to have the capital to be able to grow efficiently,” said Brittany Greenfield, CEO of Boston startup Wabbi, which makes security tools for software developers.
As for all those cranes in the sky that came to symbolize Boston’s gilded age, the long-running building boom will probably take a pause, experts say.
The billions of dollars of projects that are under construction will probably be completed, but new buildings that haven’t broken ground yet could find it difficult to get financed, meaning the next boom could take longer to launch.
“We’re in the middle of the hurricane right now,” said Boston developer and hotelier Dick Friedman. “It’s very hard to see a blue sky and calm day in that storm.”
* * *
Most analysts agree this recession will be the worst since the Great Depression. Yet forecasting the length and depth of the decline, and the contours of any recovery, is far more complicated given the unprecedented nature and velocity of the pandemic-propelled meltdown. Social distancing measures have forced the economy into hibernation, and some restrictions are expected to continue even after nonessential businesses reopen.
A survey by the National Association for Business Economics released last week found a huge variance in how bad the hit will be: Some economists estimated the economy would shrink by an annualized 1 percent in the April-June quarter; others by as much as 50 percent. The consensus estimate still came in at a whopping 26.5 percent decline.
Forecasts for recovery are similarly varied. Some economists see a “V” rebound, with growth surging back to previous levels. Others see a “U” recovery, with several quarters of minimal growth before things turn up.
“Neither is impossible, but I think a Nike Swoosh with a zig-zagged back half is more likely, as intermittent isolation is applied,” said Megan Greene, an economist and a senior fellow at Harvard’s Kennedy School, describing a steep decline followed by a longer, uneven recovery.
Yet amid the dismal forecasts, stock prices have recently rallied in response to massive Federal Reserve rescue lending and hopes that the economy will begin to reopen soon. The Standard & Poor’s 500 index has gained 28 percent since bottoming out March 23.The benchmark remains down 15 percent from its Feb. 19 peak.
Any rebound will differ sector by sector. If hospitals and doctors can reschedule elective procedures to later in the year, the losses won’t be as brutal. But for the Boston hospitality industry — which has been among the hardest hit, along with restaurants and retail — the road back could take two years, said Rachel Roginsky, owner of Pinnacle Advisory Group, a Boston hotel consulting firm.
That’s longer than it took to recover from the Great Recession or the 2001 terrorist attacks.
International visitors won’t be returning for some time. Ditto conventions and corporate travelers. With less demand, Roginsky expects Boston hotels won’t command the same prices when they reopen and will experience an “interim normal” of reduced business until people feel comfortable enough to socialize and travel again.
The Massachusetts economy will come back, and its post-pandemic future could be as solid as ever. Innovations abound, whether it’s life science companies looking for a COVID-19 cure or health care finally embracing telemedicine and universities perfecting online education.
Boston, observes Northeastern University president Joseph Aoun, is well positioned to thrive in a world in which protecting public health will be paramount. That plays well to the region’s strength as a medical-industrial powerhouse anchored by academic research hospitals and biotechnology firms.
The health crisis is also likely to remake the global supply chain, bringing more factory jobs back to the United States. Aoun said Massachusetts, which is known as a leader in advanced manufacturing, stands to benefit.
“This community faces challenges, and this community provides solutions to those challenges,” said Aoun. “Boston is resilient.”
Hiawatha Bray, Deirdre Fernandes, Tim Logan, and Jonathan Saltzman of the Globe staff contributed to this report.