SECTOR IMPACTS

While manufacturing had enjoyed recovery and growth in jobs through 2016, emerging protectionist tendencies linked to the USChina trade dispute led to higher costs and slower job growth. The onset of COVID-19 shed light on several weaknesses in U.S. manufacturing ecosystems:

• Dependence on global supply chains for personal protective equipment,

• Food supply chain sensitivity, and

• Over-reliance on China as a source market for exports.

The impact of COVID-19 on manufacturing has unfolded in surprising ways. Reduced demand for gasoline impacted ethanol production, and because carbon dioxide is a by-product of ethanol, the beverage industry experienced increased costs and supply constraints. Sources such as the Journal of Commerce suggest that manufacturers will look to diversify source markets for imported components and accelerate manufacturing re-shoring back into the U.S. According to Wall Street Journal, by May of 2020, nearly a quarter of companies told the Institute for Supply Management that they were planning or have begun to re-shore or “nearshore” some or most of their operations. That same month, 93 percent of executives told McKinsey & Co. they would explore a potential overhaul of their supply chains. Also, sources such as Colliers International have suggested an opportunity for between 750 million and 1 billion future square feet of industrial space, above current trends, linked to re-shoring.

Energy markets are undergoing significant change, linked to the pre-COVID-19 expansion of domestic oil and natural gas production and parallel growth in renewable energy as an offset to growing climate volatility concerns. As lockdowns unfolded in the spring of 2020, dramatic reductions in oil demand forced entities such as the

Texas Railroad Commission to consider oil price targets for the first time since the 1980s. Although lower petroleum and natural gas prices tend to be supportive of manufacturing sectors, which rely on natural gas as a feedstock (plastics and chemicals), sectors such as commercial aviation have been slow to recover to pre-COVID-19 energy consumption thresholds. According to the U.S. Energy Information Administration, while Indiana remains a large producer and consumer of coal, from a renewable energy standpoint, wind power provided seven percent of Indiana’s utility-scale electricity net generation in 2020, with solar, biomass, and hydropower accounting for about two percent of generation; these sectors supported an estimated 3,500 jobs in 20201 according to seia.org.

Health care is facing different and unique challenges. Beyond continued federal policy confusion about the direction of health care insurance, the industry is facing several practical challenges linked to COVID-19:

• Reduced capacity to manage (generally profitable) non-emergency outpatient procedures;

• Labor shortages across the health care system;

• Specific (and increasingly structural) challenges with rural health care service provision; and

• Post-COVID-19 growth in telemedicine is expected.

Tourism remains a challenged sector due to COVID-19, causing a sharp downturn in people’s willingness to travel for most of 2019. While domestic air travel is recovering, international air travel remains challenged. In September 2021, the Transportation Security Administration (TSA) screened 38.8 million travelers compared to 51.1 million in 2019; air travel remains at about 76 percent of 2019 levels (a large percentage of the remaining gap is international travel). Looking to past recessions, domestic tourism tended to shift toward lower-cost regional destinations. However, COVID-19 has encouraged people to extend stays and work remotely for extended periods, with greater interest in outdoor activities, rather than dining, entertainment, and conventions.

Retail was under pressure well before COVID-19 due to the growth of e-commerce and “omnichannel” retail, parallel growth of private equity ownership of retail, and a general oversupply of retail space. With COVID-19, pressure on traditional retailers increased as the share of retail dollars spent online accelerated from about 10 percent to about 15 percent during the second quarter of 2020. By August 2020, JCPenney, Neiman Marcus, J. Crew, Pier 1 Imports, and Stein Mart had filed for bankruptcy protection. By December of 2020, Macy’s stock price being down by 30 percent and Home Depot’s stock price being up by 30 percent reinforced the reality of a work from home economy. Notably, Home Depot has not offered stock price guidance for 2021 due to expectations that retail spending patterns will shift again, with likely acceleration in apparel as people begin to venture out. In terms of sector impacts, retail and restaurants have been particularly impacted, with employees becoming significantly less willing to work in related occupations where significant interpersonal contact is required.

Broadband access has come into sharp focus as COVID-19 changed workforce and education dynamics over the last two years. As increasing numbers of people telecommute, and as students move to remote learning platforms, high-speed broadband access has become essential. The federal government recommends 100 Mbps as the ideal download speed, but there are large areas of southwest Indiana where these speeds are simply not available. Figure A.25 the maximum advertised download speeds in the region and shows the areas where improved broadband infrastructure is needed.

Childcare became a major challenge as schools closed and students shifted to remote learning. While residents in urban areas have begun to access childcare services, the provision of childcare services in rural areas remained constrained well before COVID-19. Access to childcare is not an issue of just income but also stems from a lack of jobs and providers in the sector.

The following economic analysis includes a