As Arizona struggles, neighboring New Mexico found a more cautious path to sustained growth

The two states start in a similar place, seen through early virus exposure. They end in a similar place, seen through levels of economic activity. But the slower, steadier path New Mexico followed differed in crucial ways. As did the human cost.

You can see it all in one statistic: Arizona has seen almost three times as many coronavirus cases as New Mexico, after adjusting for its much larger population. It’s one of the worst rates in the nation; a grisly illustration of the cost of reopening the economy without containing the coronavirus.

In early spring, it appeared Arizona and New Mexico were in comparable spots. As the pandemic tore through coastal urban centers, they saw similarly low caseloads. On March 24, with cases ticking up, New Mexico Gov. Michelle Lujan Grisham, a Democrat, issued a stay-at-home order. A week later, Arizona Republican Gov. Doug Ducey followed suit.

The fallout of those orders should be familiar by now. Restaurants from Yuma, Ariz., to Raton, N.M., sat empty. Unemployment rates in each state hit their highest levels on record. And, crucially, the spread of the virus seemed to slow.

On May 1, the two states took their first tentative steps to reopening. New Mexico opened some state parks and allowed curbside pickup at nonessential retailers. Arizona allowed elective surgery.

Their paths diverged from there. In rapid succession, Arizona permitted retail outlets, barbers, restaurants, coffee shops, gyms and pools to open. On May 15, Ducey allowed the state’s state-at-home order to expire. The next day, with its wealthier, faster-growing neighbor open for business, New Mexico issued statewide mask requirements and took the first tentative steps toward reopening retail establishments. Most of the state remained locked down.

Within weeks, Arizona’s outbreak spiraled out of control. The state had the highest infection rate in the nation in June, ultimately exceeding the peak New York set at the beginning of April. It has since been eclipsed by Florida, but case rates remain extremely high.

On June 17, Arizona’s Ducey finally allowed cities to begin requiring masks, more than a month after New Mexico’s Lujan Grisham had required them statewide. On June 29, Ducey took the first step toward re-closing, ordering high-contact, indoor businesses such as bars, gyms, theaters and water parks to shut back down. He still hasn’t required masks statewide.

But did its businesses really gain any advantage over their New Mexico competitors? Not at all, according to data from the small-business tool Womply, obtained via Opportunity Insights.

Across industries, Arizona firms remained open at higher rates and reported more revenue than those in New Mexico though April, May and much of June. But by the end of June, with the state’s residents reeling from the worsening outbreak, business activity started to fall.

By July, Arizona’s small businesses were opening and earning at around the same rates as those in New Mexico, and all the larger state had to show for its aggressive early action was a rising coronavirus death rate.

“There’s no doubt the way we reopened the state led to a large spike in cases,” said Todd Sanders, president of the Greater Phoenix Chamber of Commerce, “and that’s why the governor has gone back and given the authority to the cities to impose mask requirements. If those had been in place we might be in a different place.”

“It does create real challenges in New Mexico where I have a third the hospital capacity and a third the ventilator capacity per capita than any other state in the nation,” Lujan Grisham said. “So as we are picking up support to Texas and to Arizona, that means that we have less available for our folks here.”

According to University of Arizona economist George Hammond, the Cares Act significantly cushioned Arizona from the full effect of the downturn. It seems likely, then, that Arizona’s plight will worsen if Congress fails to extend additional unemployment insurance benefits before they expire this month. The state’s maximum weekly benefit is just $240 a week, the lowest rate of any state but Mississippi ($235). In New Mexico, benefits will top out between $461 and $511 a week.

A recent analysis of Census Bureau data by the Center for American Progress, a left-leaning think tank, finds the Arizona-New Mexico divergence repeated nationwide. States that reopened early didn’t fare better economically, and they fared markedly worse in terms of public health.

Regardless of the state governments’ actions, “most people at their core understand how dangerous this virus is, and they’re not willing to risk their lives to go out dinner,” said Ryan Zamarripa, one of the report’s authors.

Some of the strongest, most up-to-date evidence of the recovery comes from an ongoing analysis by economists at the Opportunity Insights team. In a recent working paper, the team analyzed huge streams of real-time data and found economic activity is being held back by consumers slashing spending in response to the coronavirus threat, not by government restrictions or lack of income.

“If reopening early causes a spread of covid cases, then that brief period of economic activity is not worth the cost,” said Michael Stepner, a postdoctoral researcher at Harvard University and one of the report’s authors. “As that second wave unfolds, you have an enormous backsliding of economic activity. Regardless of whether businesses are open, people are avoiding them.”

“A reopening that spreads the virus is not one that will be effective in improving the economy,” Stepner added later.

Stepner’s work hints the optimal strategy is a gradual, New Mexico-style approach that prioritizes public health. The sentiment was echoed in late June by none other than Jerome H. Powell, chairman of the Federal Reserve.

“The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus,” Powell said then. “A full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities.”