The Federal Reserve on Tuesday reacted to the spreading coronavirus outbreak by announcing a dramatic cut in short-term interest rates, but the emergency move is of limited help to a vulnerable Atlanta economy, experts say.
The nation's central bank sliced its benchmark rate by a half-percentage point, hoping to insulate the U.S. economy from possible damage caused by the outbreak. The cut, the Fed's largest since the 2008 financial crisis, will ripple through the financial system to help banks and companies by making it cheaper to borrow money, which, in turn, will lighten consumer debts.
»THE LATEST: Complete coverage of coronavirus in Georgia
But the most crucial impact is symbolic, said economist Tom Smith of the Goizueta School at Emory University. "This tells people, the Fed is aware, 'We are paying attention.' This is more of a psychological boost."
The danger from the coronavirus is different from traditional economic threats, which typically chill consumer demand. For example, when the price of gasoline spikes, consumers use less of it.
In contrast, the coronavirus is expected to hit both supply and demand.
Right now, there's a supply crisis because shipments of goods from China have slowed. That likely will mean not only empty spots on store shelves, but missing products needed on American assembly lines to finish goods, like cars.
“There are hundreds of companies just in Atlanta, that get products from China and all of those companies are going to be freaking out,” Smith said. “If you have 99% of the parts you need, you still have no product.”
Coca-Cola officials recently said they were "experiencing delays in production and export" of the sweeteners used in their soda.
For that kind of problem, the interest rate cut is of no help, Smith said. “The Fed isn’t producing aspartame.”
“There’s a benefit to a global economy, that people can specialize and goods are cheaper. But when (production) stops, it is hard to reverse,” he said.
Low rates also will not be much help to Georgia manufacturers that can't get the parts they need. More than 400,000 people across Georgia work at manufacturing plants that have foreign parts in their supply chains, including those at Kia, Blue Bird, Gulfstream and Lockheed. More than 200,000 people work in the logistics sector, handling and transporting goods.
And nearly everyone is a consumer.
Jon Gabrielsen, an economist and manufacturing consultant, said he expects shortages of China-made goods to his Walmart and other retailers. He thinks the crunch will come within the next few weeks and last at least two months.
Georgia ranks seventh among states for the importance of Chinese trade to its economy, according to an analysis by Wells Fargo economists.
Any problem that disrupts or restricts travel would hurt Atlanta, since the region draws so many visitors and events. Roughly 56 million visitors come to town each year, spending about $16 billion, according to the Atlanta Convention and Visitors Bureau. Hospitality as a sector includes roughly 300,000 jobs.
A number of conferences and trade shows across the country have been canceled or postponed because of concern about the virus – a decision no major group would make on a whim, said William Pate, the bureau's president and CEO.
“For a lot of these organizations, this is a financial issue,” he said. “Obviously, you don’t cancel a convention lightly.”
Thus far, there have been no significant cancellations here, Pate said. “It is a very fluid situation. But, as of today, all of our major customers are planning to move forward.”
Later this week, Atlanta-based SECO International – an optometrists' organization – holds its convention, an event that typically draws about 5,000 people to the Georgia World Congress Center.
But thus far, no organizers of large-scale events have called to change plans, said Frank Poe, executive director of the authority that runs the GWCC.
"We have had no cancellations and no postponements," he said. "At this point, people seem to be going about their daily lives."
Though only a few cases of coronavirus have been diagnosed in Georgia, the state’s economy would be damaged if fear keeps people from going to restaurants or public events.
Chinese trade as share of state’s GDP
Tennessee: 8.0%
California: 6.0%
Washington: 5.7%
South Carolina: 5.6%
Illinois: 5.1%
Kentucky 5.0%
Georgia: 4.5%
Arkansas: 4.3%
Idaho: 4.3%
Mississippi: 4.2%
Source: Wells Fargo Securities
Impact of the Georgia World Congress Center
Jobs on center payroll: about 500
Jobs supported: 20,174
Economic impact: $1.97 billion
Source: Georgia World Congress Center Authority
Impact of convention and tourism, metro Atlanta (2018)
Number of visitors: 56 million
Spending: $16 billion
Conventions and events hosted: 750
Jobs in metro Atlanta hospitality 300,000
Source: Atlanta Convention and Visitors Bureau
Atlanta’s rank in hotel visitors
Las Vegas
New York
Chicago
Orlando
Washington, D.C.
Atlanta
Los Angeles
Houston
San Diego
Source: Atlanta Convention and Visitors Bureau
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