Texas dodged a bullet economically during the pandemic

Online sales, unemployment payments helped keep economy afloat

By Tim Brown

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On the anniversary of the start of the COVID-19 pandemic, Gov. Greg Abbott issued an executive order removing the state’s mask mandate and allowing businesses to open at 100% of capacity. As the state begins to reopen, we all want to know how have we done so far? Where are we at now, relative to where we were when the pandemic began? 

For many people, last year brought a lot of suffering. Economically, however, we may have dodged a bullet.

Technology helped many businesses as they used online sales to replace at least some of the revenue they lost in in-person sales. Meanwhile, expanded unemployment payments allowed many people to continue purchasing needed items — often from online vendors. Consequently, sales tax revenue remained relatively stable for the state and for many counties. Such factors, assuming the pandemic is soon brought under control, bode well for a recovery.

As of April 18, the seven-day average of new COVID-19 cases had declined to about 2,300, down from a high of more than 19,100 for the seven days ending Jan. 17. 

More than 2.3 million cases had been confirmed and more than 45,000 people had died of COVID-19 in Texas. The county-level impact has varied, although no county has been untouched, as seen in Map 1.

Unemployment trends 

The Texas Department of State Health Services recorded the first confirmed case of COVID-19 in March 2020, as seen in Chart 1. As the number of cases climbed over the next few weeks, businesses were forced to close across the state, laying off or furloughing employees. 

By the end of April 2020, the number of confirmed COVID-19 cases had risen to 28,087. At the time, more than 1.7 million Texans were unemployed, bringing the state’s unemployment rate to a staggering 12.9%, an 8 percentage point jump from the previous month, as seen in Chart 2. In May, the number of confirmed COVID-19 cases had more than doubled to 64,287 by the end of the month. 

The Urban Institute found that by Jan. 7, 2021 — 42 weeks into the pandemic — more than 4 million unemployment insurance claims had been filed in Texas, far exceeding the number filed in the state during the 1990 recession, the 2001 recession or the Great Recession, which began in December 2007.

Although still high, the state’s unemployment rate declined to a more manageable 6.8% by the start of 2021. Though unemployment rates are not yet available for March, the U.S. Department of Labor reported 65,105 initial jobless claims in Texas for the week ending April 10, a 22.5% decrease from the week before.

But, as the report noted, the initial job losses have not been felt equally. 

As of Jan. 20, employment rates in Texas for those making less than $27,000 annually had decreased 15.4%. But those making more than $60,000 saw their employment rate fall only a fifth of what their low-wage peers saw — a 3.1% decline for the same period, according to Opportunity Insights, a joint venture of Harvard and Brown universities. 

Businesses that stayed open did relatively well

The universities also noted that the number of small Texas businesses dropped by 31.2%, and their total revenue declined by 35.1% from Jan. 15, 2020, to March 3, 2021. Yet, as of Feb. 28 of this year, consumer spending had not dropped as much — falling only 7.6% since January 2020.

Many businesses did close, but those that remained open appear to be in relatively good shape. The pandemic has not yielded dramatically high delinquencies or defaults among small businesses because of government support, reduced payrolls and lender forbearance, which have helped businesses stay open, according to the Urban Institute’s report. 

Meanwhile, online sales accelerated nationally. Amazon reported that its online sale rose 37.6% in 2020 compared with 2019, and the company forecast growth of 33% to 40% for this year's first quarter. 

Smaller businesses did not completely lose out. According to an article in the National Law Review, small businesses increased online retail sales 44.5% year-over-year reaching $211.5 billion in the second quarter of 2020.

County revenue streams

The impact on county revenue streams is more difficult to quantify since only 124 counties collect a sales tax.

Chart 3 shows the change in sales tax allocations to counties for each month, starting with January 2020, in comparison to the same month of the previous year. For example, sales taxes collected in February 2020 were 10.4% higher than in February 2019; in September 2020, they were 9.4% lower than in September 2019. While there were a few bright spots, sales tax allocations were down in most months — yet not as much as expected.

Chart 4 shows county sales tax allocations as columns and state sales tax collections as a line — each with its own vertical scale — from 2011 to 2020. While sales taxes at both levels of government dropped in 2020, even after accounting for the difference in how “year” is defined, the drop-off was less severe than the decline from 2015 to 2016.

Of the 124 counties that collect a sales tax, 76 saw an increase in their allocations from 2019 to 2020, as seen in Map 2

Of the 48 counties whose allocations decreased, 12 suffered a decrease of more than 25%; 11 saw a decrease between 10% and 25%; and 25 saw a decrease of no more than 10%.

Many of the counties with reduced sales tax allocations are near the international border, and the declines may be partly due to the travel restrictions that went into place on March 21, 2020, to slow the spread of COVID-19.

As of March 2021, the pandemic is far from over. The number of new cases remains significantly higher than when the state first went into lockdown in 2020, and another spike could occur as restrictions are lifted or if the vaccines are found to be ineffective against one of the new coronavirus variants. Yet, while it has been devastating to many people and businesses, the economic impact of a yearlong COVID-19 shutdown has been less severe than almost anyone could have anticipated.