Covid-19 impact on business strategy - Review the Perryman Report (link below) on the recent national disaster that significantly affects all businesses in the nation and world. The focus is on Texas

In order to “flatten the curve” and prevent a major spike in infec - tions, drastic measures have been taken. The inevitable result has been and likely will continue to be a strong shock to the economy. Many factors will determine the ultimate effects of the coro - navirus on the economy, most of which are highly uncertain at present. The length and sever - ity of the outbreak, the nature and magnitude of the full policy response, and the capacity of businesses to resume normal activities are among myriad phe - nomena that will play a signifi - cant role.

ESTIMATING THE ECONOMIC COST OF COVID-19 The Perryman Group devel - oped a plausible scenario for the ultimate effects of COVID-19 based on a variety of public and private source materials includ - ing, among others, data from sectors that have been particu - larly affected, information from areas where the pandemic spread earlier (as well as prior pandem - ics and natural disasters), perfor - mance patterns in other economic downturns and recoveries, and historical responses to oil price fluctuations. Reasonable mea - sures of potential direct effects by detailed industrial category were developed through this process.

These direct effects were then used as inputs to The Perryman Group’s dynamic and integrated econometric and impact assess - ment systems to determine total economic costs of COVID-19 as various sectors interact through - out the economy. The simulation accounts for the effects of the stimulus package and the recent actions by the Federal Reserve to stabilize financial markets.

US AND TEXAS COSTS The Perryman Group estimates that the COVID-19 pandemic could cost the US economy ap - proximately $972.6 billion in real gross product and 11.4 million jobs. Note that job losses are IN THIS ISSUE COVID-19 COSTS AND OIL PRICES Measures taken to prevent a major spike in COVID-19 infections have been essential to protecting human health. The inevitable result has been harm to the economy. In this issue, The Perryman Group’s esti - mates of the costs to the US, Texas, and largest Texas metropolitan areas are presented, as well as a perspective on the economy’s path forward. In addition, an overview of the current oil price situation is presented.

TEXAS RESPONDS TO THE COVID-19 CRISIS Texans are putting their best foot forward in response to COVID-19.

Check out the unique ways busi - nesses and universities across the state are standing strong and con - tributing during challenging times.

FOCUS ON: POPULATION A breakdown of population by MSA provides a quick look at the forecast for 2019 to 2045. See page 7 to get a snapshot of the anticipated growth for the state as well as for an MSA near you. VOL. 37, NO. 2 From all of us here at The Perryman Group, we hope you are safe and well. We are following the COVID-19 situation carefully and, as we have done for almost four decades, take your need for information very seriously. We are analyzing the economic effects on an ongoing basis and will post everything that we generate on our website as a public service at www.perrymangroup.com . Page 2 | The Perryman Group Copyright 2020 reported on an annualized ba - sis; thus, many more individ - uals are likely to be affected for a portion of the year. For Texas, The Perryman Group estimates that the cost of COVID-19 and the associated disruptions in the oil market is almost $101 billion in real gross product and 1.0 million annualized jobs. More detailed results by industry for the US and Texas are provided on page 3.

TEXAS METROPOLITAN AREA COSTS Communities across the state and nation are feeling negative effects, and The Per - ryman Group estimated the potential costs of COVID-19 for Texas’ most populous met - ropolitan areas. Projected annualized job losses in Austin-Round Rock- Georgetown total almost 77,400, with over 282,500 in Dallas-Fort Worth-Arlington, nearly 256,000 in Houston- The Woodlands-Sugar Land, and about 81,300 in San Antonio-New Braunfels.

Losses are spread across all industrial sectors, particularly the large and high-contact segments such as retail and some types of services. Addi - tional detail, including addi - tional results by industry and some findings for other large states, is available at www.perrymangroup.com. KEEPING THE NUMBERS IN PERSPECTIVE Recent estimates of mas - sive job losses associated with COVID-19 are drawing frequent comparisons to the Great Depression. A num - ber making headlines is that unemployment could jump to 32% in the second quar - ter, an estimate derived by researchers at the St. Louis Federal Reserve Bank. Using detailed occupational data, they analyzed whether vari - ous jobs were essential, could be completed remotely, and were salaried to estimate the “high-risk occupations” which met none of these criteria.

They also quantified jobs that are high contact. The average of these approaches suggested that about 47 million people could be laid off during the second quarter, yielding 32% unemployment. This number aligns closely with The Perryman Group’s estimates, which were derived through detailed analysis by industry and simulations of resulting economic interac - tions using the firm’s large- scale models. The loss of 11.4 million jobs on an annualized basis can alternatively be viewed as 45.6 million if con - centrated in a single quarter. The talk of massive layoffs and 30% unemployment has led to ubiquitous compari - sons to the Great Depression.

However, prior to the Great Depression, there were mas - sive structural problems in the economy, and policy responses were less well un - derstood. The major harm of the Great Depression was not that joblessness spiked above 30%; it was, rather, that it remained there for almost a decade. The current situation ema - nates from a horrific pandem - ic, but the economic structure is basically sound. The num - bers will likely be terrible, but temporary. Once the worst of the virus subsides and social distancing is relaxed, venues will reopen and tens of mil - lions of jobs will quickly be restored. The stimulus pack - age (and perhaps others) and aggressive monetary policy should maintain the funda - mentals needed for a rapid recovery. Prominent psychologist Dan Kahneman received a Nobel Prize for work explor - ing how our behavior inter - acts with the economy. He demonstrated that how we present things can greatly af - fect our attitudes and actions.

Focusing on peak job losses and drawing inaccurate paral - lels to the Great Depression can, in and of itself, be harm - ful. Copyright 2020 The Perryman Group | Page 3 To the extent a similar historical period exists (and there are myriad differences), it is the Spanish flu outbreak of 1918-19. The population was one-third of current levels, and 600,000 US lives were lost. We must remem - ber, however, that the period immediately thereafter is known as the “Roaring 20s.” If the economic structure remains intact, we can ex - peditiously rebound from a health-induced crisis.

LOOKING AHEAD TOWARD RECOVERY It is impossible to predict how the pandemic will play out and what will ultimately happen, but the similarity and enormity of job loss estimates by The Perryman Group and other researchers suggest that the job market and the economy will endure a power - ful jolt. Given the number of as - pects of the economy that are being affected (and, for Texas, the oil situation) a period of significant contraction for the economy is inevitable. How - ever, because the underlying economy was strong prior to this situation, it is likely to be more of a pause than a fundamental change, with a fairly rapid recovery once the worst of the virus is past.

A key aspect of performance (continued on page 6) A Representative Illustration of the Potential Overall Impact of the COVID-19 Pandemic on Business Activity in the United States Results by industry sector in billions of 2012 US dollars Industry Sector Real Total Expenditures Real Gross Product Real Personal Income Jobs Agriculture -$55.565 b -$14.526 b -$9.419 b -148,735 Mining -$121.201 b -$31.807 b -$18.000 b -145,119 Utilities -$88.517 b -$20.330 b -$8.872 b -37,571 Construction -$81.454 b -$39.952 b -$32.923 b -464,268 Manufacturing -$707.318 b -$216.937 b -$122.580 b -1,801,934 Wholesale Trade -$125.973 b -$85.247 b -$49.154 b -549,631 Retail Trade* -$348.381 b -$241.617 b -$137.000 b -4,737,870 Logistics* -$105.709 b -$65.773 b -$43.500 b -601,228 Information -$27.575 b -$16.686 b -$7.124 b -62,987 Financial Activities* -$213.904 b -$70.131 b -$28.709 b -288,794 Business Services -$77.621 b -$46.207 b -$37.693 b -458,609 Health Services +$25.858 b +$16.066 b +$13.584 b +224,354 Other Services -$282.524 b -$139.430 b -$100.469 b -2,366,242 All Industries -$2,209.884 b -$972.578 b -$581.858 b -11,438,635 Source: US Multi-Regional Impact Assessment System, The Perryman Group Notes: Monetary values given in billions of 2012 US dollars. Components may not sum due to rounding. Retail Trade includes Restaurants, Logistics includes Transportation & Warehousing, Financial Activities includes Real Estate.

A Representative Illustration of the Potential Overall Impact of the COVID-19 Pandemic on Business Activity in the State of Texas Results by industry sector in billions of 2012 US dollars Industry Sector Real Total Expenditures Real Gross Product Real Personal Income Jobs Agriculture -$3.314 b -$0.858 b -$0.560 b -8,848 Mining -$85.183 b -$21.450 b -$11.607 b -91,489 Utilities -$8.281 b -$1.902 b -$0.830 b -3,515 Construction -$8.699 b -$4.267 b -$3.516 b -49,579 Manufacturing -$54.557 b -$16.118 b -$9.063 b -124,835 Wholesale Trade -$12.443 b -$8.420 b -$4.855 b -54,289 Retail Trade* -$31.013 b -$21.311 b -$12.046 b -422,656 Logistics* -$10.394 b -$6.468 b -$4.277 b -59,119 Information -$2.335 b -$1.413 b -$0.603 b -5,334 Financial Activities* -$21.159 b -$6.725 b -$2.669 b -26,702 Business Services -$6.644 b -$3.955 b -$3.226 b -39,253 Health Services +$2.075 b +$1.289 b +$1.090 b +18,005 Other Services -$18.809 b -$9.392 b -$6.824 b -160,353 All Industries -$260.755 b -$100.989 b -$58.987 b -1,027,969 Source: US Multi-Regional Impact Assessment System, The Perryman Group Notes: Monetary values given in billions of 2012 US dollars. Components may not sum due to rounding. Retail Trade includes Restaurants, Logistics includes Transportation & Warehousing, Financial Activities includes Real Estate. Page 4 | The Perryman Group Copyright 2020 Earlier this year, oil prices began to fall due to the novel coronavirus and the effects of virus-related disruptions on demand for crude oil. The quantity of oil purchased in the market in March plummeted as the effects of the virus spread across the world, falling by more than 20%. This unprecedented, albeit temporary, “de - mand shock,” in and of itself, would have (and initially did) put enormous downward pressure on oil prices. In the midst of the virus pandem - ic, talks among major global oil pro - ducers to try to bring discipline to the market collapsed. The decision by the Saudi Arabian government to engage in what is essentially a price war with Russia (after that country refused to endorse production cuts) caused oil prices to fall sharply due to the potential for dramatically increased crude oil production.

Several other large producers also signaled higher out - put. The result was a massive “sup - ply shock” at a time of rapidly declining demand. Neither Russia (because of inefficiencies in its production) nor Saudi Arabia (because of the social spending that is tied to oil production) can sustain these prices indefinitely, but it remains to be seen when the situation will be resolved. Until then, the US industry will struggle, particularly smaller and mid-sized firms, as credit dries up and profits vanish. Although production costs are down sharply in Texas in recent years, they are not yet at a level to maintain viability at current prices.

As a result, the situation is leading to sig - nificant disruptions in the Permian Basin and other major production areas. The industry is engaged in a rapid shutdown of drilling activity, which ripples through an enormous supply chain and supporting retail and service enterprises in the affected communities. Banks which have large energy company loan portfolios are being strained, and mid-stream and down - stream investments are being deferred.

Adverse effects on oil producing areas are already being ob - served in a dramatic fashion. The current situ - ation is devastating, but temporary. The fundamental eco - nomic forces that were driving oil production to record levels in recent years have been paused but remain in place. The emerging segments of the world economy will continue to expand rapidly once the virus subsides and will require enormous energy supplies. As de - mand recovers and supply issues are resolved over time, oil prices will begin to rise. Oil Prices and the Energy Sector Copyright 2020 The Perryman Group | Page 5 SAN ANTONIO City-based H-E-B has stepped up its game in response to the coronavirus crisis. The grocery giant has deliv - ered truckloads of products to food banks across the state and is making a $3 million commitment to support local organizations in the fight.

Frost Bank, the largest regional bank headquartered in San Antonio, has also donated $2 million to relief ef - forts and will designate half of that for area groups.

FORT WORTH Insurance and financial services firm Higginbotham is making a weekly commitment to support community service workers during the COVID-19 outbreak. Not only are they hav - ing meals delivered to those on the front line, they are also supporting local restaurants by purchasing food through their “Higginbotham Helps” program.

HOUSTON A team from Rice University has partnered with Canadian company Metric Technologies to develop a low-cost ventilator prototype. Geared toward noncritical coronavirus patients, plans for the device will be freely available online. EL PASO The city has entered into an interlo - cal agreement with the University of Texas at El Paso to increase its COVID-19 testing capacity. Faculty and staff from the College of Health Science’s Clinical Laboratory Science program are working with public health technicians to analyze results from the city’s drive-thru test site.

IRVING 7-Eleven, Inc.’s headquarters an - nounced that it has donated 1 million masks to the Federal Emergency Management Agency (FEMA). The convenience retailer is also providing personal protective equipment for all its store employees.

Craft retailer Michael’s which is headquartered in the Las Colinas development, is donating 10,000 bolts of fabric to support Dallas- area groups that are coordinating mask-sewing projects for health care workers.

DALLAS UT Southwestern Medical Center will be one of the first hospitals to receive face shields produced by Toyota Motor North America. Head - quartered in Plano, the automaker will also distribute protective equip - ment made at its idled plants to MD Anderson in Houston and facilities in Kentucky and Indiana. AUSTIN Researchers at the University of Texas are working with Dell Medical School on a 3D-printed mask design for hospitals. Texas Inventionworks, the Cockrell School’s innovation hub, is finalizing details so that mass production can begin soon.

Tito’s Handmade Vodka has started production of a hand cleaning solu - tion to give to those in need in the community. The distillery hopes to make 24 tons of hand sanitizer that adheres to industry and governmen - tal guidance.

MIDLAND Imperative Chemical Partners, a specialty chemical provider to op - erators and midstream companies, made and donated $75,000 worth of hand sanitizer to the Medical Center Health System. Thanks to their quick response to a potential shortage, the hospital now has an adequate supply.

WACO GelPro, a maker of comfort floor mats, is shifting gears at its 70,000 square foot manufacturing facil - ity here. The company has started producing medical face shields and shipped its first batch to New York City. HAVE AN ANNOUNCEMENT TO MAKE? Envelope-open 510 N. Valley Mills Dr, Suite 300 Waco, TX 76710 Phone 254.751.9595 Fax 254.751.7855 envelope [email protected] tv www.perrymangroup.com Let our editors know what’s taking place in your “neck of the woods.” Share the details of recent economic de - velopment happenings in your area with our readers by reaching out to us.

The Perryman Report & Texas Let - ter is read monthly by the state’s most notable leaders. TEXAS RESPONDS TO THE COVID-19 CRISIS Page 6 | The Perryman Group Copyright 2020 is consumer spending, since in normal times such spend - ing drives about 70% of the economy. Uncertainty and job losses are reducing spending for discretionary items rang - ing from travel to automobiles to clothing and household goods. Spending will likely in - crease fairly quickly once the situation improves, with the ultimate economic effects no - table for a quarter or two, but not dramatic in terms of long- term performance. Unlike the Great Depression as described previously or even the dot- com debacle, the savings and loan mess in the 1980s, or the more recent Great Recession, there is not an overarching major problem (such as an overheated market ripe for a crash). A combination of unique and unprecedented issues is causing slowing, but as they are dealt with, growth will pick up. In fact, while The Perry - man Group expects economic patterns for the next couple of years to be very different from the firm’s projections prior to the outbreak, there is not yet evidence that the five- year and long-term outlooks should be modified at this time.

CONCLUSION Unlike many economic is - sues, much of the solution to this situation must come from the health care and biosci - ences sectors. The physical wellbeing of the population is of paramount concern, yet the economic consequences must also be addressed as they exert a notable human cost as well. Aggressive monetary and fiscal policy measures can help reduce downstream losses and dampen the ul - timate economic costs of COVID-19. Although the situ - ation is changing rapidly and the ultimate outcomes will undoubtedly vary from the losses estimated by The Per - ryman Group, they provide a guideline for planning and expectations. There is a sharp drop in economic activity at present, but there is no reason to be - lieve the US will enter an ex - tended depression. The basic structure of the economy was sound prior to the outbreak, and the current downturn is essentially fallout from a health crisis (which should be our primary focus). Assuming that through aggressive mon - etary policy, targeted fiscal stimulus, and other measures the basic economic struc - ture can be kept in place, the recovery should be relatively rapid once the virus risk has abated. (continued from page 3) A Representative Illustration of the Potential Overall Impact of the COVID-19 Pandemic on Jobs in Texas Metropolitan Areas Industry Sector Austin- Round Rock- Georgetown Dallas- Fort Worth- Arlington Houston- The Woodlands- Sugar Land San Antonio- New Braunfels Remaining Regions Agriculture -182 -545 -468 -293 -7,361 Mining -969 -8,224 -32,542 -2,543 -47,211 Utilities -153 -590 -1,119 -74 -1,580 Construction -3,907 -12,731 -14,258 -3,486 -15,198 Manufacturing -7,099 -37,186 -27,290 -7,682 -45,578 Wholesale Trade -4,789 -18,599 -15,653 -3,410 -11,839 Retail Trade* -36,506 -115,428 -98,854 -38,252 -133,616 Logistics* -2,166 -22,025 -14,669 -3,563 -16,697 Information -673 -2,270 -791 -639 -961 Financial Activities* -2,106 -10,365 -5,223 -3,386 -5,621 Business Services -4,015 -13,452 -10,949 -3,095 -7,743 Health Services +1,164 +4,737 +3,927 +1,648 +6,529 Other Services -15,969 -45,844 -38,066 -16,506 -43,969 All Industries -77,370 -282,520 -255,953 -81,281 -330,845 Source: US Multi-Regional Impact Assessment System, The Perryman Group Notes: Components may not sum due to rounding. Retail Trade includes Restaurants, Logistics includes Transportation & Warehousing, Financial Activities includes Real Estate. Copyright 2020 The Perryman Group | Page 7 FOCUS ON: POPULATION Major Metropolitan Areas 2019 2045 Gain Growth Austin-Round Rock-Georgetown MSA 2,192,031 3,434,251 +1,242,220 +1.74% Dallas-Plano-Irving MD* 5,076,850 7,730,180 +2,653,330 +1.63% Fort Worth-Arlington-Grapevine MD* 2,498,624 3,716,386 +1,217,763 +1.54% El Paso MSA 864,618 1,155,679 +291,061 +1.12% Houston-The Woodlands-Sugar Land MSA 7,086,159 10,049,266 +2,963,107 +1.35% McAllen-Edinburg-Mission MSA 881,253 1,185,253 +304,000 +1.15% San Antonio-New Braunfels MSA 2,553,694 3,814,584 +1,260,890 +1.56% STATE OF TEXAS 29,090,626 41,220,888 +12,130,262 +1.35% Other Metropolitan Areas 2019 2045 Gain Growth Abilene MSA 173,922 227,553 +53,631 +1.04% Amarillo MSA 269,540 333,690 +64,151 +0.82% Beaumont-Port Arthur MSA 404,749 490,299 +85,550 +0.74% Brownsville-Harlingen MSA 433,814 582,603 +148,790 +1.14% College Station-Bryan MSA 265,182 373,964 +108,781 +1.33% Corpus Christi MSA 436,744 554,473 +117,729 +0.92% Killeen-Temple MSA 455,565 633,621 +178,057 +1.28% Laredo MSA 281,925 389,047 +107,122 +1.25% Longview MSA 288,664 350,548 +61,884 +0.75% Lubbock MSA 323,986 425,713 +101,728 +1.06% Midland MSA 176,657 273,420 +96,764 +1.69% Odessa MSA 161,941 237,892 +75,951 +1.49% San Angelo MSA 122,047 137,507 +15,460 +0.46% Sherman-Denison MSA 135,748 210,347 +74,599 +1.70% Texarkana MSA 95,077 108,866 +13,789 +0.52% Tyler MSA 232,725 305,229 +72,504 +1.05% Victoria MSA 101,194 122,298 +21,104 +0.73% Waco MSA 274,153 352,142 +77,990 +0.97% Wichita Falls MSA 152,700 171,272 +18,572 +0.44% * Metropolitan Division (part of the Dallas-Fort Worth-Arlington MSA)Notes: “Gain” refers to the absolute change in value from 2019 to 2045 while “Growth” refers to the compound annual growth rate over 2019-2045. Page 8 | The Perryman Group Copyright 2020 THE PERRYMAN GROUP The Perryman Report & Texas Letter is a publication of Texas Economic Publishers, Inc. , a division of The Perryman Group . For more information on subscriptions , economic forecasts , or any of our other corporate services , call 1.800.749.8705.

Author: M. Ray Perryman Contributors: Virginia Johnston, Nancy Risinger Creative Director: Shelia W. Smith Layout Artist: Geoffrey Eisenbarth Research & Editing : Karen Amos, Elodia Cavazos Technical Advisor: Pete Tamez Dr. Ray Perryman is President and CEO of The Perryman Group, an economic research and analysis firm based in Waco, Texas. His firm has served the needs of more than 2,500 clients, including two-thirds of the Global 25, over half of the Fortune 100, the 12 largest technology firms in the world, 10 US Cabinet Departments, the 9 largest firms in the US, the 6 largest energy companies operating in the US, and the 5 largest US banking institutions. Dr. Perryman was named Outstanding Young Person of the World for Business and Economic Innovation in 1987, was designated Texan of the Year by the Texas Legislative Conference in 2012, received the Baylor University Distinguished Service Medal in 2013, was inducted into the Texas Leadership Hall of Fame in 2014, and received the Cesar E. Chavez Conscience Builders Award in 2016 for his humanitarian efforts. He recently received the 2019 Chairman's Award for Lifetime Achievement in Economic Development from the International Economic Development Council and the 2019 "Go Global" Award from the International Trade Council as the outstanding global economic analyst for his work on trade, energy, the environment and other international issues. He dedicates a significant portion of his time to pro bono work aimed at helping to solve pressing social problems such as hunger, indigent healthcare, poverty, and child maltreatment. IMPACT ASSESSMENT We have developed and continually maintain an extensive set of economic impact evaluation models that can be applied in a variety of contexts.

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SPEECHES Dr. Perryman addresses dozens of audiences throughout the world every year, catering to a wide variety of events. The Perryman Group is a focused team of analysts who know how to address complex economic information tasks and present our findings effectively. Our in-house professionals bring expertise in economics , finance , statistics , mathematics , real estate , valuation , systems analysis , engineering , technical communications , and marketing . Dr. Ray Perryman, President and CEO, has 40 years of experience in developing systems, analyzing complex problems, and communicating effectively. We have considerable pride in what we do. Our enthusiasm is both unbridled and contagious; every day brings a new opportunity for us to tackle a different problem or create a product or service specifically tailored to our clients. Reach out to us for more information!

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