The Weekly Briefing - January 19th, 2021

Year-End Slowdown in Retail Sales Belies Relative Strength During 2020

Headline figures for consumer spending hide atypical spending patterns with some sectors outperforming and others underperforming. For example, the retail sector finished 2020 on a subdued note by posting the third consecutive month-on-month decline in total sales. Data from the Census Bureau show retail and food services sales declined 0.7% in December. Online retailers, one of the biggest winners during the pandemic, suffered the largest falloff last month with a 5.8% drop. Despite the monthly decline, however, retail and food services proceeds were up 2.9% YOY in December, and totals for 2020 improved 0.6% YOY. The National Retail Federation reports a similar pattern for holiday sales that were up 8.3% YOY despite slowdowns since fall in key holiday sectors such as electronics, sporting goods, and others. These positive year-over-year results suggest that the retail sector’s difficulties last year primarily related to unexpected dislocations in the areas where consumers chose to make purchases. For example, proceeds at grocery stores jumped 11.2% last year, and this almost certainly came at the expense of restaurants and bars, which saw sales plummet 19.5%. Springtime business restrictions and the resulting retail turbulence could have generated pent-up demand in some retail subsectors. Yet it is well-known that many firms failed to survive the sharp downturn, and it is unclear whether we would have seen a stronger rebound without such significant business churn. Monthly Retail and Food Services Sales, Seasonally Adjusted (Billions of Dollars) Small Business Sentiment and Revenue Weakening

Small business owners across the U.S. were growing increasingly concerned about their economic prospects in December as payrolls decreased for the first time in several months. The NFIB’s Small Business Optimism Index dropped 5.5 points last month to 95.9, the lowest reading since May when much of the economy was still closed to non-essential activities. Many small businesses appear to be losing ground as case counts surge and states and local governments re-impose restrictions. A smaller share of businesses reported growth in profits last month. And real-time data from Opportunity Insights indicates small business revenue weakened over the past few months across high, middle, and low income areas. Total small business revenue stood 31.1% below January 2020 levels as of year-end. The softening sales activity dampened owners’ expectations for business conditions during the first half of 2021. And a separate survey conducted by the Census Bureau shows that almost half of small business owners expect it will take six months or more before their firms see operations return to normal levels. Percentage Change in Small Business Revenue Relative to January 2020 by Zip Code Income Level Half of Major Office Markets Register Positive Rent Growth, Buoyed by Recovery in Office Jobs

More than half of the 50 largest office markets by total asset value registered positive market rent trends during 2020 despite pandemic-related disruptions that resulted in the availability rate to rise in every major market—though some experienced greater YOY change than others. Palm Beach, Albany, and Raleigh led major markets in rent growth last year, pushing rents more than 3.0% higher compared to year-end 2019 figures, according to CoStar. All the top office markets for rent growth have seen office-using employment rebound more quickly relative to each market’s overall employment growth. This tracks with nationwide figures that show the recovery in office jobs is outperforming the overall jobs recovery by approximately 200 basis points. Raleigh and Sacramento in particular have achieved a strong pace of recovery as office-using employment in both metros has nearly retraced to pre-pandemic levels. Many of last year’s top office markets for rent growth also benefited from muted development activity that resulted in lower competition from new supply entering the market. Deliveries in both Palm Beach and Philadelphia, for example, were minimal in comparison to existing inventory of office space. Jacksonville is the only top-ten office market that experienced positive net absorption last year. Major Office Markets with Strongest Rent Growth in 2020

Disclosures and Disclaimers

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