COVID-19 & The Florida Economy: Impact, Remedies, and a Unique Analytics Opportunity

Yesterday I spoke to Fox 13 Tampa Bay as part of a brief segment they aired on the impact of COVID-19 on the Florida economy, and possible remedies. Given that apparently most of Florida was clearly social-distancing at Clearwater beach I was the only one they could find to talk to. While the eventual clip on primetime was just a few seconds, a lot of what we talked about is still in my head and I need to free up some space, so here it is.

The numbers at stake are big

Florida recently hit a trillion dollars in GDP, gets about 100 million visitors a year spending about 80 billion dollars in the state, resulting in about 1.5 million jobs and approximately $4 billion dollars in sales tax revenue attributed to tourist spending (approximate numbers from reports from Visit Florida and the Florida Office of Economic and Demographic Research). A one to three month break can cost about 20% or more reduction in this spending, the economic consequences of which are very significant. Acknowledging that we live in uncertain times where no prescription comes with guarantees, I suggested a short-term view, a long-term view and an angle where analytics can play an important role in the recovery.

Short-term priorities

The #1 priority is health and safety. Without healthy people there is no economy to protect. So do as we are told to flatten the curve and minimize the impact of COVID-19 on our healthcare infrastructure. We have a large relatively older population in Florida, and making sure we protect them and our healthcare workers from danger and exhaustion (as we are seeing in Italy) should be our top priority.

Yesterday the Governor of Florida also announced that all bars in the state will be closed for 30 days at least. I am sure there’ll be an article about how Florida Man doesn’t think he’s affected by this since he doesn’t normally hit the bar until 7pm anyway. The closure does include nights as well. A lot of people will be affected by measures like this which are necessary now though. Our #2 priority therefore should be to look for the economically most vulnerable in our state and help them as soon as possible. The hourly workers in the service sector and gig economy workers are taking a hit, and this will only get worse in the next 30 days. They need help right now, and we need to figure out a way to get this to them. For this group direct cash infusion of a certain amount (coupled with an interest free loan program for a larger amount) is an option that needs to be taken very seriously (there were Federal proposals to this effect, hopefully there will be bipartisan support to pass this).

Many of the small businesses in Florida that are tied to foot traffic and tourists also need help. Today applications are open for the Florida Small Business Emergency Bridge Loan program, which provides a one year interest free loan to businesses that qualify. This is a tremendous safety net for this group and will come in very handy now for many. I encourage many of our SMBs to apply and take advantage of this to survive and outlast this crisis.

Maybe this year we can create a “Fall Break” for students to compensate for the “Spring Break” economic loss. Break is good for students. Professors can also give tired anaesthesiologists a break that week. We can productively use our skills to put people other than our students to sleep that week.

Long-term outlook

In the long-term we have many good things going for us in the state, which we need to recognize. If COVID-19 is contained then I believe that things will likely recover soon. This might be a one year hit the economy to take, but the damage may not be as structural and deep as it was in the financial crisis, and therefore I expect and hope the economy will recover soon thereafter in the next year (2021). The economy is a complex system though, and many of the large actions taken now might have ripple effects that show up in unexpected ways which we have to prepare for. Even in that case, none of the newer problems that may come up will be unique to Florida – unlike the last recession where real estate speculation - rampant in Florida - played a big role.

In the long term we need to keep doing the things as a state that brought us out of the previous recession including investing in education, economic diversification and science & technology while adding transportation and inclusive economic growth to the mix.

A unique analytics opportunity

Times of crisis and shock almost always provide unique data analytics opportunities, but preparation is key to take advantage. Logistics companies like FedEx or UPS have hundreds of thousands of small and medium business (SMB) customers shipping with them. One of the critical unknowns is share of wallet – which of your customers is doing most of their shipping with you and which ones aren’t?

Now about 20 years ago UPS went on strike for 15 days. Suddenly, from a competitor’s lens, “some” customers doubled and tripled shipping volume, with others stayed the same in those 15 days. Hmm… Now you probably know who you want to hand-sign those holiday greeting cards for. Going forward, data from these two weeks can significantly alter loyalty and marketing programs.

Our tourism and hospitality industry is likely to have their own version of this now. What should they look for in the data and how can they use it?

When the COVID-19 crisis abates it might likely do so in a short period when we see new cases and deaths drop dramatically. Sometime after this, many of the normal restrictions will likely start to fade, and the industry will have an opportunity to again recruit customers broadly and widely. The ones who first come back may be unique and quite different than the others, and targeted advertising to this group can save money and yield bigger dividends. In what way could they be different? That answer will be there in the data.

How we perceive risk and the role this can play

It’s possible that those with a greater penchant for risk may be your early birds here. We know through neuroscience and psychology that people process risks differently and are poor at calculating odds. In a person’s lifetime the chances of dying of a car accident is about 1 in 100 while in a shark attack is about 1 in 4 million. Yet more people are typically scared of dying in a shark attack.

We are seeing this play out today as health officials plead for isolation and social distancing. Some listen and some don’t. Today. But tomorrow may be different. Case in point my very scientific experiment of two people. Unlike in China, in the US we do a great job identifying famous people who have COVID-19 (like it’s some kind of social service that our media does). Now that we know Tom Hanks, Sophie Trudeau, Kevin Durant and Idris Elba have tested positive do we feel that the virus is more or less dangerous? Spoiler alert. It shouldn’t matter. But it likely will. 50% of the two subjects in my super-scientific experiment vehemently argued that it feels like the risk is much lower because obviously these people are doing fine. This is the "Psychology of Naming Names". There are a myriad of reasons why famous people might make out better than less famous ones though, but our instincts don’t do a good job processing all that.

What’s this got to do with tourism?

By carefully analyzing data in the early days of the recovery, it may be possible to identify co-variates or combinations of them that suggest who may be more inclined to taking risks when information is still somewhat uncertain. Pricing experiments could be targeted to those who don’t display these characteristics – extra deals and discounts to see at what level others, with more moderate risk, need prices to be at before they make that reservation. This will also provide a “one time” treasure trove of information as these companies move forward. When planning future demand for cruises in summer you need to know who might be the ones who want to book months in advance, and who might be the ones who like to book days or weeks in advance. Chances are that the “late birds” who display more cautious behavior now will also be cautious when it comes to making bookings way in advance. Right? Who knows. But these are the things that the data can show, if we know to ask these questions. And there is only one time when such data can be tracked, and that is now.

Back to the Florida economy

Florida leads the country in net migration, companies increasingly are considering moving in here, our economy is increasingly diversifying with tech, finance, healthcare and education, so a lot of underlying positive momentum is very much there in our state and none of that has changed fundamentally because of COVID-19. If there is even an iota of truth in warm weather doing a number on viruses, it will be even better news for our net migration rate. So if we do the right things now as a state, and address short-term needs without taking our eyes off the ball for the long-term, we will emerge a stronger economy than ever before.

While we struggle to process the impact of these few months there is also a silver lining. Election year spending is always a plus and Florida is a “swing state”. People will come and spend a lot in here in Fall, compensating somewhat for losses in March. The more we hem and haw when pollsters call us and ask who we might vote for, the more they’ll come and spend. So hem and haw a lot from hereon. In fact I am planning to make that my standard voicemail response – a hem and a haw (once I know what those things are).

Another interesting angle for thought. Most of you know about the Amazon sales tax angle and how that's playing out across states. Now, total digital spending in elections is likely around $5-$10 Billion this year. In the old days most of that (ad) spending was local, and local and state economies directly benefited. Increasingly this spend goes from campaigns to platforms like Facebook, and the states whose people see those ads don’t get any piece of the action. A few months back Nobel laureate Paul Romer proposed a digital ad tax that states might want to think about to charge for digital ads aimed at their residents. Maryland and Nebraska I believe have some bills in the very early stages on this. Florida, being a swing state can probably bring $50 million or so from this source and can use that to expand our emergency bridge loan program. Whichever side of this you are on, at some point we should at least have a debate on this. But that’s for another day…

Reference

Florida's Small Business Emergency Bridge Loan Program https://floridadisasterloan.org/

Office of Economic & Demographic Research, State of Florida https://edr.state.fl.us/Content/presentations/index.cfm#economic

Visit Florida Analysis https://www.visitflorida.org/media/71465/2017-contribution-of-travel-tourism-to-the-florida-economy.pdf

The Psychology of Irrational Fear https://www.theatlantic.com/health/archive/2014/10/the-psychology-of-irrational-fear/382080/

Paul Romer on the Digital Ad Tax https://www.nytimes.com/2019/05/06/opinion/tax-facebook-google.html