Loren Scott: Louisiana economy will recover, but at slower pace than U.S.

How quickly Louisiana’s economy overcomes the coronavirus pandemic depends on two key factors: how quickly—and thoroughly—the U.S. will stop the virus’s spread, and how effective federal loan programs will be in getting the nation back on track. But even then, with low oil prices and an extended construction lull, the state’s recovery will slightly lag the country’s.

That’s according to state economist Loren Scott, who, along with U.S. Sen. John Kennedy, last week discussed Louisiana’s economic future during a webinar hosted by Business Report. Watch a recorded version of the webinar.

For the U.S. economy, the annual consensus for real GDP forecasts through 2020 ranges between -1.3% and -8.5%, with the second quarter taking the biggest dive (from -22.3% to -25.7%) but picking up in the third quarter (from 7.2% to 10.7%). While uncertain, the projected recovery timeline, if accurate, should help Louisiana in rebooting its economy.

“We had a bit of a surplus we’d built going into these four quarters, but the governor will still end up with a $400 million shortfall going into next year,” Scott said, noting annual state sales tax collections could be reduced by about $200 million. “That’s manageable, but it’ll still be a problem especially on the mineral side.”
The Saudi-Russia price war—which has effectively increased the supply of and decreased demand for oil—has brought oil prices down to $20 per barrel, which will be particularly difficult for the oil-dependent Louisiana to bounce back from and will especially hurt the state’s so-called “oil patch” that includes Houma and Lafayette. With recent negotiations, though, oil demand is forecast to slowly creep up by the third quarter and reach 2.5 million barrels per day in 2021.

Meanwhile, four major construction projects totaling $39.6 billion had been expected to bring relief to a statewide construction lull that cost Louisiana 6,600 jobs in 2019; for now, however, those plans are on hold.

Scott expects the Baton Rouge metro area to lose 79,380 jobs in April, including independent contractors, hitting an implied unemployment rate of 22%. About 60% of job losses would occur in the tourism industry. Like other local governments, Baton Rouge should begin seeing how sales tax collections are impacted near the end of May, when April numbers are released.

One bright spot for the local economy comes from the chemical industry, which is still operating and keeping many high-wage jobs. Moreover, Baton Rouge’s economy shouldn’t feel the hit to the tourism industry as much as New Orleans, which relies more on hotels, restaurants and attractions to stay afloat, said Scott.

“[Baton Rouge] is a very government-oriented area,” he said. “For the most part, those workers should still be paid, but I’ll be surprised if we don’t have layoffs at the state and local government levels by 2021.”