IE Business Daily Business news for the Inland Empire.
The region resists massive cancellations, at least temporarily, but its logistics industry could be hurt badly if the flow of goods from China is interrupted for a long time.
As of last week, the Inland Empire remained relatively unscathed by the Coronavirus outbreak.
By Friday, six cases had been reported in Riverside County, none of them fatal. In San Bernardino no cases were reported, although health officials in both jurisdictions declared a state of emergency anyway.
No major venues shut down, although some schools, including UC Riverside and Cal State San Bernardino, did suspend classes indefinitely. There were also some restaurant and business closings.
At the same time, Disneyland announced it will be closed for two weeks, only the sixth time in its 65-year history. Major sporting events, including the start of baseball season and the NCAA men’s and women’s basketball tournaments – March Madness – were postponed or canceled along with virtually all theaters and other forms of paid entertainment.
Gov. Gavin Newsom declared a ban on most gatherings of 250 or more people, and Los Angeles Mayor Eric Garcetti said gatherings of 50 people or more would not be permitted there.
Also, President Trump ordered a 30-day ban on European travel into the United States, then declared a national state of emergency. The latter making it easier for states and local governments to get their share of billions of dollars in Federal assistance to fight the virus.
Meanwhile COVID-19 – the disease caused by the Coronavirus – continued to spread quickly. Between March 5 and March 12, the number of infected persons in the United States went from 227 to 1,645, according to the U.S. Center for Disease Control in Atlanta.
By Friday, more than 1.3 million people worldwide had been infected by COVID-19, with nearly 5,000 deaths, according to reports.
The biggest test for the Inland region probably remains a month or two away. By then, there should be some indication how much damage the Coronavirus has done to the imported goods that originate in Asia and end up in Riverside and San Bernardino counties.
Because the two-county region is so dependent on the logistics industry, the answer to that question will be crucial to the region’s long-term economic prospects, said Jay Prag, associate professor of economics at Claremont Graduate University’s Drucker School of Management.
One sign of possible bad news from the logistics sector are reports of an 18 percent year-over-year drop in container import volume in February at the Port of Long Beach and a 23 percent drop at the Port of Los Angeles. Both of those trends are being attributed to COVID-19.
Whether either of of those declines happened because of the Coronavirus outbreak is debatable, because of the one month it takes any goods to get from Asia to the west coast of the United States. That means any goods from Asia that wind up in Los Angeles, Long Beach or San Pedro today were shipped one month ago, when few people were being treated for Coronavirus – which started in China – as a potential global calamity.
If the decline reported in February continues during the next 30 days or so, then the supply chain between the United States and Asia probably will have been disrupted by the COVID-19 outbreak, according to Prag.
“A lot of people are freaking out, and they’re going to be running to the hospital whenever they start to feel bad,” Prag said. “The news that activity is down at the ports isn’t good, but I don’t think it will stay down that long. I don’t think we’re going to see 40 million people dead, which is what happened 100 years ago with the Spanish Flu. I don’t think this is that serious.”
The last time the U.S. economy was in circumstances similar to what it’s facing now was the aftermath of the 9/11 terrorist attacks, said Robert Kleinhenz, formerly an economist with Beacon Economics in Los Angeles and now a consultant based in Long Beach.
In that instance, the economy responded well: gross domestic product fell 1.49 percent in third quarter, when the attacks occurred, but regained 1.1 percent of that in the fourth quarter, Kleinhenz said.
“Economies are resilient and they usually bounce back,” Kleinhenz said. “We may see some slowdown, but the economy is not going to be swallowed up. Yes, there was a slowdown in shipments from China in February, but that had a lot to do with the Chinese New Year. With the Coronavirus, we won’t know the impact for a month or two.”
But the supply chain from Asia will get interrupted, it’s only a question of how much, said Paul Earnhart, senior vice president and a “big-box” industrial specialist with Lee & Associates Ontario.
“We don’t know the magnitude yet, but it will happen,” Earnhart said. “I’ve already seen a couple of deals go away because people don’t want to commit to anything long term. Are you going to sign a 10-year deal for $50 million if you don’t know what the market will look like in six months? Probably not.”
