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The Restaurant Recession

Jeremy Horpedahl, Ph.D., assistant professor of economics

One of the most visible signs of the COVID-19 recession has been the massive harm to restaurants and bars. We see it as we drive around town: Restaurants are closed, doing curbside service only, or have radically altered their layout to make their spaces safer.

We can also see the harm to restaurants in the economic data. Back in the depths of the shutdowns and labor market contraction in April, fully one-third of all job losses in Texas were centered on the “food services and drinking places” industry, as the Bureau of Labor Statistics calls these establishments. Pre-pandemic, this industry accounted for 8.7 percent of all nonfarm jobs in Texas.

In total, over 450,000 restaurant and bar workers were out of work, out of about 1.1 million before the pandemic. Relative to the size of the restaurant and bar industry, workers at these businesses were hit four times as hard as the average worker. While everything is bigger in Texas, these figures are closely comparable to national data, where restaurants and bars accounted for 7.9 percent of employment before the pandemic, and about 28 percent of job losses through April.

Within the restaurant and bar industry, bars and restaurants that depend primarily on dining room service were hit much harder. Fast food restaurants, for example, were already well-equipped to provide drive-thru service.

Read more at Texas CEO Magazine.

Putting the GDP Numbers in Context: What You Need to Know

By Jeremy Horpedahl, Ph.D.

Jeremy Horpedahl, Ph.D.

We all know that we are going through one of the worst economic downturns in US history. But how bad exactly is the downturn? The recently released Gross Domestic Product data for the second quarter of 2020 paint a very grim picture, with the headline number suggesting that the economy contracted by -32.9%.

GDP is a measure of all economic activity that takes place in a quarter or a year. Was there really one-third less activity in the second quarter compared with the first quarter? No there was not. The actual number is about a 7% decline. I’ll explain more how I came up with that number, but let me stress this is still a very bad number. It’s the worst we have on record, possibly the worst in US history, probably even worse than any one quarter of the Great Depression (if we had directly comparable data). Still, a number like -32.9% is not a very helpful number in the current context.

Interpreting economic data is challenging during the current economic crisis. My intent is not to downplay the harm, but to give it proper context. For example, I have previously written that the unemployment rate understates how much pain there is in the labor market right now. In contrast, the recently released GDP data overstate the economic pain.

Read more at Texas CEO Magazine.

Horpedahl also recently appeared on The Cato Institute’s Daily Podcast to give a quick rundown of the numbers. Listen here or anywhere you get podcasts.