Last year, as New Hampshire’s economy entered its first Covid winter, Evan Mallett, chef and owner of Black Trumpet Bistro and Wine Bar in Portsmouth, told NH Business Review: “I see the light at the end of the tunnel but also the trainwreck before we get there.”
This year, as the state experiences an even more severe pandemic surge, Mallett says his business has gotten through the “worst of the tunnel” and survived.
But when he and others emerged, they saw a very different economy.
Businesses, including hospitals, have for the most part been able to “coexist with Covid,” as Alex Walker, CEO of Catholic Medical Center, put it. But in adapting, the economy has evolved along with the virus. And that is both a good and a bad thing.
“It’s a whole new world,” said Ron Lahout, an owner of the Lahout’s chain of ski shops in the North Country, including the nation’s oldest in Littleton. The influx of people who moved from largest cities to retire or work from home has meant that business is better than ever. But that also means an “amazing” demand for goods is “overwhelming, especially in outdoor recreation, where all the action is right now,” Lahout said.
The evolution also means unprecedented challenges.
In October, the unemployment rate in Littleton was 1.9 percent, one of the lowest in a state that already has one of the lowest jobless rates in the country.
Lahout said he was able to staff up, but getting there was like “pulling teeth” and, of course, by paying people more. Getting product in time for Christmas is another problem. Insulated apparel and Nordic equipment are months behind delivery times, and he said he could see a major Christmas crunch coming.
“It’s all good,” he hastened to add. “But it has created a lot more work. You just have to work so much harder. And I think this is here to stay.”
New Hampshire businesses are making more money than they did last year because they’re paying more taxes — $242.5 million in business profits taxes for the fiscal year so far (from July to November), an increase of 25 percent from the same time period in 2020. The bulk of those taxes are quarterly payments paid in September, when the BPT and the business enterprise tax totaled $203.6 million, nearly $50 million more than September 2020 and more than $85 million over September 2019.
Workforce difficulties
So New Hampshire came back. But did it come back better?
First of all, it has been an uneven, and perhaps uneasy, recovery, with the Delta variant raging and Omicron lurking over the horizon.
And some businesses still are not back to normal. For instance, most people are returning to the gym, but some older customers are holding back, said Michael Benton, owner of three fitness centers in New Hampshire and CEO of Londonderry-based Genavix Corp., a national chain.
“We are probably doing 80 to 90 percent” of pre-pandemic revenue, “but being back two years ago is not where you want to be. We are surviving, but we don’t have the resources to grow. The economic situation is tolerable, just not favorable.”
“It is kind of upside down,” said Annette Nielsen, an economist in the state Economic and Labor Market Information Bureau. “The pandemic has created a whole different economy. It’s a total reverse from the Great Recession a decade ago. Then, you had thousands of people for one job. Now you can’t find workers, who are rethinking their lives.
What happens when you close down the economy and open it up all at the same time? You create bottlenecks for labor and supplies.”
This might be more true in the Granite State because it shut down hard at the start of the pandemic, sending unemployment rates to 16 percent in April 2020, although it recovered quickly, and the rate fell below 3 percent a year later. In October, it was at 2.9 percent, and weekly claims data indicate it will be close to that in November. In fact, the state is the only one in New England whose economic activity index is clearly above pre-pandemic levels.
(Vermont is just barely there, and all the other states are not quite back yet.) But shortages of both supply and labor have reached crescendos, pushing up the price for both.
“The big problem is that we don’t have enough to sell,” said Elliot Eisenberg, a Miami-based economist who was the featured speaker at a recent New Hampshire Housing webinar. “Everybody is short of everything everywhere.”
The labor shortage isn’t just a matter of low unemployment. People have dropped out of the workforce, and older folks seem to have disappeared the most, with some opting to retire.
With its older population, New Hampshire is perhaps more affected than most states, said Nielsen. According to the latest Department of Employment Security report in June, labor participation dropped from 68 percent in 2020 to 65.6 percent in the first quarter of 2021. The biggest drop was among women, a dive from 70.8 percent to 60.5 percent. Most of them were in the 25-to-34 age bracket. Among men, the largest dropout group was between the ages of 55 and 64. Both changes reverse long-term trends of increasing labor participation among women and older people.
In addition to shrinking the workforce, Covid also shook it up. Many workers left for better-paying jobs. Wages have been going up in New Hampshire generally: 6.6 percent between October 2020 and October 2021. And advertised wages for new jobs rose even more, according to an Employment Security analysis of job advertisements. It’s not just about money, said Nielsen.
Employees who have grown used to working from home are chafing at the requirement to return to the office because of ongoing risks, child care issues or simply inconvenience.
“They call it the Great Resignation, but maybe it’s also the great job-churning,” she said.
The healthcare industry has been hit particularly hard by the workforce shortage, said Walker of CMC, which is currently facing an unprecedented surge in Covid cases. That was the very thing hospitals were worried about last year when they shut down all elective surgery at the start of the pandemic.
CMC lost $47 million in the fiscal year ending Sept. 30, 2020, and only survived with government assistance, Walker said. The following year, it was 1.4 percent in the black, but that was before this latest onslaught.
“Now we are in the soup again,” he said. “Hospitalizations are higher than they have ever been. Right now our ICU is full and over capacity,” he said.
Hospitals, with their high vaccination rates and increased knowledge about the virus, have so far been able to continue electives, but staffing shortages have driven up expenses. CMC, like so many others, is relying on traveling nurses, and that costs $1 million to $2 million more per month.
Supply chain
The shortage of workers affects another major difficulty: the lack of supplies.
New Hampshire is affected more because we’re in the corner of the country and don’t have a competitive port, so nearly everything has to be trucked in. And there’s a shortage of both trucks and truckers.
Last year, New Hampshire imports dropped by 32.4 percent, the second-sharpest drop in the nation. The country as a whole only suffered a 6.3-percent decline. As demand picked up, so did imports nationwide, but not enough, and New Hampshire’s 16.2 percent rebound was milder than most. Imports from China have fallen three years in a row. This, of course, is happening in every state. Most notably, “the whole world is asking for chips,” said Zenagui Brahim, president of the New Hampshire Manufacturing Extension Partnership.
Supply chain bottlenecks not only affect production but sales as well, because the downstream customer may not be able to buy a manufacturer’s part because the customer’s entire production may be held up because of supply issues. “This cascades up and down the chain,” Brahim explained.
Perhaps this is one reason — along with the shortage of workers — that New Hampshire’s manufacturing sector has been relatively stagnant, at least in terms of employment. It has actually lost some 100 jobs over the last year, whereas the state as a whole gained 21,000.
But that could mean there just aren’t enough people to hire. Graphicast Inc. in Jaffrey, for instance, is several positions short, “but we have more orders than we have ever gotten,” said CEO Val Zanchuk.
Other companies “are buying stock in advance, for next year, just so they are not going to deplete what they have,” said Brahim.
Dawn Wivell, an international trading consultant, knows one client who needed a product for a drone to be used in a covert operation in the Caribbean. He bought it before he was sure he had landed the contract. “It’s scary for a small company to spend hundreds of thousands of dollars, but they had no choice really,” she said.
The supply chain mess has also made it tougher for retailers, said Nancy Kyle of the New Hampshire Retail Association. “The larger retailers are in better shape because they can buy in bulk in advance.”
Grappone Automotive Group would like to stock up, but cars are already sold before they even arrive. “We take a deposit, but we only have a few cars,” said CEO Larry Haynes. “Onesies, twosies. It’s just different. We used to have more inventory than we wanted.”
And when you do get your supplies, they can cost a lot more. The price of lumber, for instance, “has gone up astronomically,” particularly if it contains any glue, said Brad Benson, an owner of Derry-based Benson Lumber & Hardware. Some plywood is going for nearly three time its previous price, though now it has settled down to nearly double.
‘Tough’ housing market
These factors drive up the cost of housing, not to mention bidding wars because of the lack of houses.
The median price of a single-family home in New Hampshire has been hovering at about $400,000 during the last six months.
“If you are a seller and don’t need a place to live, things are awesome, but if you are a buyer, they are tough,” said Ben Frost, managing director of policy and public affairs at New Hampshire Housing during the aforementioned webinar.
The lack of inventory, which in one year dropped from a six-month supply of homes to just a one-month supply, was “shocking,” he said. As a result, the number of closings is starting to decline.
“There are just not enough homes to sell,” Frost said. In November, the number of homes for sale dropped to 1,380, a 32-percent decrease, and they were snapped up in an average of 28 days, a 25-percent drop from the previous November. Homes were sold at an average of 1.6 percent over the asking price, driving prices up to $401,000, some 13.6 percent over last year.
There is a particular need for multifamily housing. The rental vacancy rate, after going up to nearly 2 percent during the pandemic, has slipped below 1 percent. A 5-percent rate is considered healthy. A two-bedroom apartment now rents for nearly $1,500, a 6-percent increase for the year and a 43-percent increase for the decade.
Builders have been building more homes, with an average of 378 permits a month, year to date, which tops 2020 by 78 and 2019 by 264. It’s not nearly enough, but what can contractors do without subcontractors?
“I put off two projects to next year because I couldn’t get subcontractors,” said Dana Nute, president of Resilient Building Groups, which specializes in energy-efficiency projects.
Hospitality
Perhaps no industry has ridden such a rollercoaster as the hospitality industry, and it isn’t clear that all of it is over. The $27 million in rooms and meals revenue collected in June was not only more than double the $11.1 million collected in 2020, it was $2.2 million over 2019. But by August, revenue sank below 2019 levels, and in November it barely exceeded last year.
Hotel occupancy also indicates a mixed bag. Year to date, the state has a 56.1-percent occupancy rate compared to 42.6 percent last year, but in the first 10 months of 2019 it was 63.1 percent.
The Notchland Inn in Hart’s Location is pretty full with guests, augmented by some back-to-back weddings, “because people want to have smaller, more intimate celebrations,” said co-owner Ed Butler.
But hotels and restaurants that cater to business travel are still having a tough time, said Mike Somers, president of the New Hampshire Lodging and Restaurant Association. “Weddings are strong, but business events are just starting to come back,” Somers said, adding that he heard anecdotally there was some softening of demand in recent weeks.
Which brings us back to the Black Trumpet Bistro, which saw business finally reach pre-pandemic levels during the late summer and autumn, but with some fall off recently. Owner Evan Mallett wasn’t sure if it was the usual winter slowdown, but a shopping trip in Portsmouth seemed to indicate it was more than that. The usual bustle of preholiday shoppers was missing. “It was sad, almost like a shadow of its former self,” he said. “With that, combined with further damage caused by the next round of the pandemic, it’s very scary.”
Meanwhile, Mallett has had to deal with “the smallest staff we ever had,” along with supply chain issues and rising costs. “Our Christmas goose is $4 more a pound, but it’s so baked in to our tradition I had to bite the bullet” and only pass on part of the cost to the customers.
The one thing he is thankful for is that most of his staff has stuck with him. He partially credits that to how they pulled together during the shutdown to prepare meals for the food-insecure. “It didn’t put food on our table. but it gave us a sense of purpose when being busy was hard to do.”
And when business came back, he said, “they were incredible. They took more hours, they adjusted their roles.
We all have to pivot to accommodate to this different world.”
Bob Sanders can be reached at bsanders@nhbr.com.