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Pennsylvania’s ‘just right’ economy goes cold

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Via Financial Times

Four weeks ago, Michael Schulson, the acclaimed chef and owner of 10 restaurants in Philadelphia, took the tough decision of laying off 1,300 staff over concerns about the coronavirus pandemic.

“My wife and I looked at each other and said ‘this is getting crazy, we have a responsibility with social distancing’,” Mr Schulson said, explaining that some diners had been too “cavalier” about it.

Pennsylvania, a key swing state in the presidential election, has been one of the worst-hit by the dramatic collapse in the US labour market because of Covid-19.

Over the past three weeks, a stunning 17m Americans have filed fresh jobless claims. The state recorded the second-highest number of new claims, as more than 1m people lost their jobs, according to the US labour department. This amounts to a staggering 8.3 per cent of the state’s population. In comparison, only 4.1 per cent of New Yorkers filed claims, even though the state is the biggest coronavirus hotspot.

“Pennsylvania is usually a Goldilocks economy. We never get too hot or too cold since we are fairly well diversified,” said Brendan Boyle, a Philadelphia Democratic congressman, whose offices have been inundated with constituent requests. “So it is a real anomaly that our unemployment claims are through the roof, far higher than most states.”

Businesses point to the move by Tom Wolf, the Democratic governor, to order the closure of “non-life-sustaining” businesses on March 19, in one of the earliest and most sweeping actions by any state.

“We moved quick and had businesses shut down across the state,” Mr Wolf told the Financial Times. “We were the first to do that, so the other states are playing catch-up.”

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Republicans and some business groups have accused Mr Wolf of being too draconian. Gordon Denlinger, the Pennsylvania director for the National Federation of Independent Business, said he had taken a “more rigorous stance on closures” than some states that have allowed businesses to stay open if they follow social-distancing guidelines. “The governor has taken a one-size-fits-all approach,” said Mr Denlinger.

Mr Wolf rejects the criticisms. He said he took the “least bad choice” to ensure that hospitals were not overwhelmed with Covid-19 patients and to “try to make this transitional period as quick as possible”.

“What we have to do is hunker down and figure out what’s the best we can do in this very bad, imperfect world,” he said. “I’m certainly sympathetic to the folks who say, OK let’s just wave a magic wand and get all the businesses back open again. I understand it, I would love to do that. I don’t think that’s a smart thing to do.” 

John Longstreet, head of the Pennsylvania Restaurant & Lodging Association, which represents 700,000 workers, said the order had contributed to the hobbling of the hospitality industry, which is the second-biggest employer in the state after agriculture.

“I’ve been through two recessions and at least two pandemics and the tragedy of 9/11,” he said. “The word unprecedented has become cliché but there’s not anything strong enough to describe this.”

Mr Longstreet said half of the 1,500 hotels, which can be open, and 26,000 restaurants in the state had shut. The other restaurants are trying to stay afloat through permitted take-out and delivery, which has showed signs of picking up. “If people had stocked up at home, they are either running out of food, or tired of their own cooking.”

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Trip Ruvane, owner of Barley Creek Brewing Company in the Pocono Mountains, is one of the many employers who has started doing kerb-side sales for the first time. He has retained his 154 employees, but only by cutting their hours. But he has had to find creative ways to bring in revenue, including by making hand sanitiser. 

Mr Ruvane said one of the few silver linings was that sales of his vodka have surged 800 per cent during the crisis, partly because Pennsylvania requires some alcohol to be sold at government-run liquor stores that are shut because they are not deemed essential. He said the crisis was testing “every entrepreneurial bone in your body”.

Anna Purcell, owner of a Philadelphia fashion boutique called Threads who shut her shop last month, is one of many people trying novel ways to endure the crisis. She started a social media campaign called #ShareYour50 that encourages people to spend up to $50 on gift cards for local small businesses to help them weather the crisis.

“We’re throwing everything we have to make this work,” Ms Purcell said, before joking that there were some businesses that seemed to be doing better. “We wish we were in the booze business.”

While some businesses agree that closures were necessary, John Silvi is frustrated. The owner of a construction materials company has shut four of his 10 ready-mix cement plants, although he has avoided laying off any of his 400 employees because he has a “rainy-day fund” for crises.

He said the state deemed concrete production to be essential but shut down infrastructure projects, leaving him few customers. But he stressed that, despite the tough situation, the US would recover.

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“It is not going to destroy America. We will get through this the same way we got through 9/11 and the financial crisis,” said Mr Silvi.

But illustrating the reality for many workers in the devastated hospitality industry, Oy Rathpakdy, general manager of two of Mr Schulson’s restaurants, said her team of 100 was struggling, even with the food that Mr Schulson was providing for many of his former staff.

“I’ve been lucky that I’ve been able to dip into savings, but the servers and line cooks, the majority of people in this industry, live pay cheque to pay cheque.”

Follow Demetri Sevastopulo on Twitter: @dimi

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