These U.S. cities may emerge the strongest after COVID-19

Senior Regional Economist at Moody’s Analytics Adam Kamins joins Yahoo Finance’s Aarthi Swaminathan and Seana Smith to break down which U.S. regions most vulnerable and the locations that could emerge the strongest after the coronavirus.

Video Transcript

SEANA SMITH: Now, coronavirus has devastated the US economy, with businesses nationwide closed for weeks. Now, Moody's is out with a new report assessing the regional economic impact of COVID-19. And for more on that, I want to welcome Adam Kamins, a senior regional economist at Moody's Analytics. And we also have Yahoo Finance's Aarthi Swaminathan joining the show as well.

And Adam, let's get into your report here. It's extremely interesting. And you identified those states and metro areas that are most exposed to this unprecedented shock. What did you find?

ADAM KAMINS: Well, we found that large cities and large metro areas that are densely populated are among the most vulnerable. Also, any place that relies really heavily on tourism and consumer industries also very highly exposed to the economic impacts, in particular.

SEANA SMITH: When you drill down into that then, what regions, what cities are really most exposed then to this? Is it the highly densely populated cities, like New York City, like Philadelphia, like San Francisco?

ADAM KAMINS: That's right. So New York City-- probably nobody's surprised-- is the most affected city and metro area in the country. You have really a host of factors that have come together to make it as exposed as it is. The four most densely populated counties in the US are four of the five boroughs of New York. That, in particular, is problematic.

The fact that it's a global city is something that is normally a real asset to a place like New York, but, unfortunately, global exposure really was a cause of the virus spreading more rapidly before we kind of fully knew and understood what the implications were. So that's at the top of the list.

Places like San Francisco, Miami, also very high on the list. And then tourist hubs. Las Vegas is very, very highly exposed, not because necessarily the case count is as high as it is elsewhere, but because that economy is almost completely shuttered right now and will be for some time, as both leisure travel and business travel dry up. Same kind of thing with Orlando, for example.

AARTHI SWAMINATHAN: Hey, Adam. It's Aarthi. Which of these states, out of all the states least prepared, are most likely to file for chapter 9 bankruptcy? And it might be a little too early to ask this question. But are there any indications that some might go in the way that Detroit did?

ADAM KAMINS: At the state level, it's a little bit early to tell. I think what we would be looking for would be states where the impact is going to be very severe and where there were existing fiscal problems already. So a state like Illinois, for example, that has above average exposure, because Chicago is, you know, a lot of these similar kind of global, densely populated, urban characteristics, and the fiscal situation for that state was extremely problematic. That could be the kind of state that, you know, we'd be keeping a pretty close. I'm not forecasting that that would happen necessarily. But I think those are the kinds of states that we're going to be watching closely.

SEANA SMITH: Hey, Adam, in your note, one thing that stuck out to me was you were talking about states scaling back the restrictions. And when you were talking about that, you mentioned the fact that there's a lot of risk that's associated with easing these restrictions too early. And because of that, one thing that stood out was the fact that we could actually turn a recession into a self-inflicted depression. Can you talk a little bit about that and what exactly we could see if, in fact, states do begin to scale back these restrictions too early?

ADAM KAMINS: Sure. So I think the way that I think about it is that states like New York, California, the states that have really been hit hard, are taking their medicine now and, no doubt, experiencing what will go down as a severe recession. But hopefully, they can begin to reopen. And if we don't have a kind of cataclysmic second wave, can gradually begin to scale back up.

What I worry about is the states where the medical advice and the epidemiologists would be saying do not reopen yet, but they're going ahead anyway. And yes, that will help them in the short term. There main numbers may look better. In fact, they probably will.

But what I worry about is that the virus will continue to kind of ramp up in places like that. And if you have a second requirement to shut down, to shelter in place, I think people will be extremely cautious at that point. Businesses will remain closed for an extended period. I think confidence, which has already gone kind of down the tubes in a lot of places, will stay that way for a while. Then you just worry about an extremely sustained period of almost no economic activity.

And I worry that kind of states that experience a really severe second wave, that if you kind of continue with the conditions we've been in for 6 to 12 months with kind of no hope and no ability to ramp up even incrementally, that's where I get really worried. And I worry that some of the states that are reopening prematurely could be kind of setting themselves up to go down that path.

AARTHI SWAMINATHAN: Hey, Adam. So looking ahead to the road to recovery. Right? So you had another report that said that an educated workforce is part of the recipe for success. And I've seen this across many, many reports since the 2008, 2009 recession. So why does education stand as a key factor in helping these states recover?

SEANA SMITH: Well, educational attainment always is critical when we look at regional economic differences. Places that are more highly educated, that lends itself to more high wage jobs. In particular, it lends itself to more high tech. And tech has really been the engine over the last decade plus that has been the key differentiator between places that have thrived and places that have struggled over the course of the previous expansion.

I think going forward, that's still going to be the case. But I think a key difference between this recovery and the last recovery is that population density and an urban core, it's going to have a different effect this time than it did last time. Last time around, the first places out of the recession were big, densely populated, global cities. This time, I think there is going to be-- and it depends on how long we're in the situation that we're in and kind of how everything unfolds from a health perspective. But big, densely populated cities for a while, I think, are going to be viewed as inherently risky. And so you could see some demographic issues, where people begin to move out of some of those cities or are hesitant to move in. So I think some of the places that we're really looking at now would be places that have high degrees of educational attainment, but are lower density. And places in the Mountain West and in the South that have grown very, very well over the last five or six years, in particular, are pretty well positioned coming out of this, whenever we do.

AARTHI SWAMINATHAN: Yeah. And just so one more question about the difference between white collar and low wage workers. Do you see that divide going to continue as we move forward in this recession or this pending recession?

ADAM KAMINS: I do, unfortunately. I think what we've seen so far-- and it's obviously still very early in this recession, but many white collar workers, not in all industries, obviously, but in many cases, the disruption has been less. People in white collar industries, by and large, are much more likely to be able to work from home. And even if their productivity is not what it was, they still have a job and a source of income, whereas, you know, more blue collar oriented industries or consumer industries, for example, those types of industries, the disruption has already been more severe and more pronounced.

That I think going forward, I think there's been a lot that we've kind of learned about what is considered essential and what is not. And I mean, there's been a lot of talk, I think rightfully so, about, you know, the wages of those workers we deem essential being significantly lower than those in industries we deem not essential. I think these are all big questions that I think policymakers are going to have to grapple with going forward.

But I think kind of smaller picture, I think white collar industries that require a higher degree of educational attainment are the ones that will probably do better over the course of this recession and the ensuing recovery.

SEANA SMITH: Adam Kamins, a senior regional economist at Moody's Analytics. Thanks so much for taking the time to join us.

ADAM KAMINS: Of course. My pleasure.