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Rate cut has limits in virus-proofing Atlanta’s economy

Travelers weave through a long line to get to the security checkpoint at Hartsfield-Jackson International Airport. Economists say that fear can convince people to travel less, avoid crowds and spend less money. STEVE SCHAEFER / SPECIAL TO THE AJC
Travelers weave through a long line to get to the security checkpoint at Hartsfield-Jackson International Airport. Economists say that fear can convince people to travel less, avoid crowds and spend less money. STEVE SCHAEFER / SPECIAL TO THE AJC

The Federal Reserve on Tuesday reacted to the spreading coronavirus outbreak by announcing a dramatic cut in short-term interest rates, but the emergency move is of limited help to a vulnerable Atlanta economy, experts say.

The nation's central bank sliced its benchmark rate by a half-percentage point, hoping to insulate the U.S. economy from possible damage caused by the outbreak. The cut, the Fed's largest since the 2008 financial crisis, will ripple through the financial system to help banks and companies by making it cheaper to borrow money, which, in turn, will lighten consumer debts.

»THE LATEST: Complete coverage of coronavirus in Georgia

But the most crucial impact is symbolic, said economist Tom Smith of the Goizueta School at Emory University. "This tells people, the Fed is aware, 'We are paying attention.' This is more of a psychological boost."

The danger from the coronavirus is different from traditional economic threats, which typically chill consumer demand. For example, when the price of gasoline spikes, consumers use less of it.

In contrast, the coronavirus is expected to hit both supply and demand.

CORONAVIRUS TIPS

CDC recommends preventive actions to help prevent the spread of respiratory diseases:

• Avoid close contact with people who are sick.

• Avoid touching your eyes, nose, and mouth.

• Stay home when you are sick.

• Cover your cough or sneeze with a tissue, then throw the tissue in the trash.

• Clean and disinfect frequently touched objects and surfaces using a regular household cleaning spray or wipe.

• CDC does not recommend that people who are well wear a facemask to protect themselves from respiratory diseases, including COVID-19. Facemasks should be used by people who show symptoms of COVID-19 to help prevent the spread of the disease to others. The use of facemasks is also crucial for health workers and people who are taking care of someone in close settings (at home or in a health care facility).

• Wash your hands often with soap and water for at least 20 seconds, especially after going to the bathroom; before eating; and after blowing your nose, coughing, or sneezing. If soap and water are not readily available, use an alcohol-based hand sanitizer with at least 60% alcohol. Always wash hands with soap and water if hands are visibly dirty.

• If you are concerned you might have the coronavirus, call your healthcare provider before going to a hospital or clinic. In mild cases, your doctor might give you advice on how to treat symptoms at home without seeing you in person, which would reduce the number of people you expose. But in more severe cases an urgent care center or hospital would benefit from advance warning because they can prepare for your arrival. For example, they may want you to enter a special entrance, so you don’t expose others.

Source: CDC

Right now, there's a supply crisis because shipments of goods from China have slowed. That likely will mean not only empty spots on store shelves, but missing products needed on American assembly lines to finish goods, like cars.

“There are hundreds of companies just in Atlanta, that get products from China and all of those companies are going to be freaking out,” Smith said. “If you have 99% of the parts you need, you still have no product.”

Coca-Cola officials recently said they were "experiencing delays in production and export" of the sweeteners used in their soda.

For that kind of problem, the interest rate cut is of no help, Smith said. “The Fed isn’t producing aspartame.”

“There’s a benefit to a global economy, that people can specialize and goods are cheaper. But when (production) stops, it is hard to reverse,” he said.

Low rates also will not be much help to Georgia manufacturers that can't get the parts they need. More than 400,000 people across Georgia work at manufacturing plants that have foreign parts in their supply chains, including those at Kia, Blue Bird, Gulfstream and Lockheed. More than 200,000 people work in the logistics sector, handling and transporting goods.

And nearly everyone is a consumer.

Jon Gabrielsen, an economist and manufacturing consultant, said he expects shortages of China-made goods to his Walmart and other retailers. He thinks the crunch will come within the next few weeks and last at least two months.

Georgia ranks seventh among states for the importance of Chinese trade to its economy, according to an analysis by Wells Fargo economists.

Any problem that disrupts or restricts travel would hurt Atlanta, since the region draws so many visitors and events. Roughly 56 million visitors come to town each year, spending about $16 billion, according to the Atlanta Convention and Visitors Bureau. Hospitality as a sector includes roughly 300,000 jobs.

A number of conferences and trade shows across the country have been canceled or postponed because of concern about the virus – a decision no major group would make on a whim, said William Pate, the bureau's president and CEO.

“For a lot of these organizations, this is a financial issue,” he said. “Obviously, you don’t cancel a convention lightly.”

Thus far, there have been no significant cancellations here, Pate said. “It is a very fluid situation. But, as of today, all of our major customers are planning to move forward.”

Later this week, Atlanta-based SECO International – an optometrists' organization – holds its convention, an event that typically draws about 5,000 people to the Georgia World Congress Center.

But thus far, no organizers of large-scale events have called to change plans, said Frank Poe, executive director of the authority that runs the GWCC.

"We have had no cancellations and no postponements," he said. "At this point, people seem to be going about their daily lives."

Though only a few cases of coronavirus have been diagnosed in Georgia, the state’s economy would be damaged if fear keeps people from going to restaurants or public events.

Chinese trade as share of state’s GDP

Tennessee: 8.0%

California: 6.0%

Washington: 5.7%

South Carolina: 5.6%

Illinois: 5.1%

Kentucky 5.0%

Georgia: 4.5%

Arkansas: 4.3%

Idaho: 4.3%

Mississippi: 4.2%

Source: Wells Fargo Securities

Impact of the Georgia World Congress Center

Jobs on center payroll: about 500

Jobs supported: 20,174

Economic impact: $1.97 billion

Source: Georgia World Congress Center Authority

Impact of convention and tourism, metro Atlanta (2018)

Number of visitors: 56 million

Spending: $16 billion

Conventions and events hosted: 750

Jobs in metro Atlanta hospitality 300,000

Source: Atlanta Convention and Visitors Bureau

Atlanta’s rank in hotel visitors

Las Vegas

New York

Chicago

Orlando

Washington, D.C.

Atlanta

Los Angeles

Houston

San Diego

Source: Atlanta Convention and Visitors Bureau