Everyone expects a rocky ride for the US economy for the first half of 2021 as the vaccine is distributed and policymakers weigh steps to boost the economy. But, at least according to one account, the recovery will unfold in a series of stages.
John Leer, writing for Morning Consult, says the economy will experience four distinct phases in the year ahead. From January to April, the second coronavirus relief package’s initial spending will create a stimulus high as unemployment insurance and stimulus checks offset the virus’s negative economic consequences, according to Leer.
“Consumers across the income spectrum will grow more confident in the economy once the money hits their accounts, driving increases in consumer spending and employment through the middle of April,” Leer writes.
By late April, Leer expects the effects of the second coronavirus relief bill to wane as unemployment benefits expire and the stimulus boost burns off, exposing weaknesses in households’ finances.
But once the vaccine is widely distributed by the end of Q2, Leer anticipates a bounce back as a wave of spending as Americans eat out and travel. That should drive a rebound through most of the remainder of the year. Restaurants and gyms are likely to see a resumption of activity before international travel increases later in the year.
By December, the economy should enter a period of normalization. Leer thinks that if large groups of unemployed workers can’t find work, then the pandemic’s economic scars will likely limit economic activity heading into 2022.
Unfortunately, not all workers will find jobs at the same pace even as the economy pushes through to normalization. The effect will be the continuation of the K-shaped recovery we have seen this year.
The K-shaped recovery is characterized by two groups of employees: higher-paid workers, who are weathering the recession, and lower-paid laborers, who are struggling.
“Individuals with less education were more than twice as likely to be out of work as college graduates,” according to Marcus & Millichap in a recent research brief. “People without a bachelor’s degree are more likely to have been employed in lower-skilled roles that were disproportionately affected by stay-at-home orders.”
The uneven recovery has had the same disconnect with commercial real estate, with some asset classes recovering based on how well its users are doing, versus others that are still flailing. To use an oft-cited example, the retail and hospitality sectors have borne a heavy burden from Covid-19, while the apartment and industrial sectors not only survived but also flourished, in the latter case.
Recent pricing in these categories show these trends are unlikely to dissipate any time soon and will likely follow Leer’s four stages of US economic recovery.
In October according to the US National All-Property Index, the apartment sector rose 7.2% and industrial 8.5%. Retail prices were down 5.2% from a year prior. The office sector continued to fall at about a 1% annual rate, with suburban offices leading that slide, falling 1.6% year-over-year in October.