The Weekly Briefing - June 8th, 2020

The Weekly Briefing – June 8th, 2020

In This Week’s Brief

  • It’s Official: We Are in a Recession
  • New Census Bureau Survey Sheds Lights on Household Financial Picture
  • States Moving to Restart Economic Activity
  • Downtown Areas Showing More Signs of Softening than the Suburbs
  • Further Signs Indicating Labor Markets are Stabilizing
  • Congressional Budget Office (CBO) Projections Underscore Long-Term Impact of the Coronavirus

It’s Official: We Are in a Recession

The National Bureau of Economic Research (NBER) announced Monday that the recession started in February 2020. The Business Cycle Dating Committee of NBER maintains the chronological history of peaks and troughs of the U.S. economy. The expansion, which lasted 128 months, was the longest in the history since recording began in 1854. The committee dated the quarterly peak as having occurred in Q4 2019—while these peaks occur in different quarters, it is consistent with NBER policy. The committee was clear in noting that this recession may be briefer than earlier contractions. While they weigh the depth of the contraction, its duration, and the breadth of economic decline, due to “the unusual nature of this recession” the committee felt it was appropriate to call the recession prior to seeing two full quarters of contraction.

Census Bureau Survey Sheds Light on Household Financial Picture

Nearly two-thirds of households across the U.S. have lost employment income since mid-March, according to the Census Bureau’s most recent Household Pulse Survey, as layoffs and hour reductions pushed many Americans into precarious financial positions. In addition, the survey found that more than half of households expect to experience wage losses in the next four weeks, highlighting widespread concern about job security that is almost certainly undercutting consumer sentiment. The Census Bureau conducted the survey between May 21st and May 26th before last week’s job report showed relative improvement in the labor market. It will likely take a few weeks before we see positive figures from the jobs report affect Americans’ sentiment about coming job losses. The Census Bureau has published four weekly editions of the Household Pulse Survey so far, and high-level figures have been relatively consistent over time. The Census Bureau has broken out survey results for seven Bridge Target Markets. Households in each of these metros have experienced lower employment income losses than the national level. Household sentiment is correspondingly more optimistic in these markets.

Share of Households that Have Lost Employment Income Since March 13th & Share of Households that Expect to Lose Employment Income in the Next Four Weeks

States Moving to Restart Economic Activity

Nearly three months after governments first declared stay-at-home orders and business restrictions, every state in the U.S. has started lifting restrictions on daily activity, largely driven by the need to revive moribund economies. But the moves could risk a resurgence of virus cases as no state meets the federal government’s core guideline that restrictions remain in place until reported cases decline for two weeks. The inconsistency in testing across states makes an across-the-board statement about COVID-19 cases difficult. Some states seen rising numbers of cases coupled with rising testing levels, while in other states testing continue to lag. So far, Idaho, Oregon, and Colorado have conducted the fewest tests when measured as a share of state population. On the other end of the spectrum, Rhode Island, New York, and New Mexico lead the country in number of tests conducted, suggesting these states may be better positioned to quickly identify new outbreaks and take responsive measures.

Downtown Areas Showing More Signs of Softening than the Suburbs

Multifamily data recently collected by CoStar suggests the virus outbreak and related economic downturn may be taking a greater toll on downtown areas than on suburban submarkets. During May, CoStar contacted 8,000 landlords and found that 56% of properties in the urban core reported rising vacancies compared to 39% in suburban areas. Rent trends are exhibiting a similar pattern as advertised urban asking rents have fallen more than 2% since peaking in early March compared to approximately 1% for suburban rents. In addition, the share of downtown communities offering rent concessions stands at 56%, substantially higher than the 30% of properties in the suburbs.

Share of Landlords Reporting Higher Vacancies During May

Further Signs Indicating that Labor Markets are Stabilizing

The jobs report released on Friday captured many headlines because of an unanticipated improvement in the official unemployment rate from 14.7% in April to 13.3% in May as 2.5 million workers were added to payrolls on net. The U-6 unemployment rate, which includes discouraged workers and part-time workers seeking full-time jobs, remained well above historic norms but also declined from 22.4% to 20.7%. Meanwhile, the labor force participation rate increased by 0.6 percentage points, which typically indicates improved sentiment regarding job prospects. Official unemployment figures should continue to be taken with a grain of salt, however, as the Bureau of Labor Statistics reported large numbers of survey participants continue to fill out the survey incorrectly. If these individuals had been correctly classified, the actual unemployment rate would have come to 16.3%, down from approximately 20.0% in the month prior. Data provided by Moody’s Analytics tell a similar story of modest improvement in the labor market as the number of layoffs during May represented a 40.8% decline compared to April figures.

Subsectors with Largest Job Declines in May                               Subsectors with Largest Job Gains in May

Congressional Budget Office (CBO) Projections Underscore Long-Term Impact of the Coronavirus

Estimates released last week by the non-partisan CBO suggest the pandemic and ongoing downturn will have long-term implications for the health of the U.S. economy. The CBO marked down its 10-year projections for GDP by $15.7 trillion, or 5.3%, relative to its forecast from January of this year. The projections also call for GDP to finish the year 5.6% lower than the Q4 2019 figure as expected rapid economic expansion later this year will likely be insufficient to make up for earlier shortfalls. The CBO did caution, however, that its forecasts are likely to evolve because of “an unusually high degree of uncertainty” about how the pandemic and government restrictions will unfold over the next two years.

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