Signs that the 2020 recession may already be over

The official arbiter, the National Bureau of Economic Research, has not said this slowdown is over. Still, it looks like the economy is back in recovery mode with encouraging signs for jobs, housing and stocks.
Some experts believe that this recession is a mirror image of that of 1918, which was also triggered by a pandemic: the global flu epidemic. This slowdown lasted only 7 months and was the second shortest on record.
Could the Covid recession follow a similar trajectory? We’ll have to wait for a decision from the NBER, the organization that declares the start and end of business cycles – which typically takes several months until the end of a recession to declare the end.

There are certainly pockets of the economy still far from pre-February 2020 levels, such as small businesses, retail and restaurants.

But many areas are improving. GDP is growing again, rising sharply in the last three quarters after declines in the first half of last year. The labor market is also recovering, as workers in hard-hit service sectors return to work. Profits rebounded along with the stock market. The housing market continues to sizzle.

And that’s pretty much the return to business as usual for many big cities.

New York's economy is the worst in the United States
“We’re not in a downturn anymore. Things are incredibly strong and it’s almost a euphoria,” said Ivan Kaufman, CEO of Arbor Real Estate Trust (ABR), a real estate company that lends to apartment owners and commercial real estate companies.

Default rates are relatively low for customers of Kaufman’s company, he said, adding that rents – which suffered a brief hit last year – are starting to climb again. The demand for leases is also increasing.

The demise of urban America may have been overstated.

“The problem that existed with Covid was that no one was going to the cities,” Kaufman said. “This phenomenon has created vacancies. But it’s over.”

‘Strong … to quite strong’

Urban real estate is not the only sector of the economy that has made a strong comeback. Fund management firm ClearBridge Investments has a recession risk dashboard that looks at a dozen economic indicators, including retail sales, housing, commodity prices, labor market, and shipments. by truck.

ClearBridge said earlier this month that most of those metrics bottomed out in May 2020 and all 12 indicators are now showing signs of recovery.

ClearBridge analysts said in a report that with this in mind, they believe the recession may have ended about a year ago, just four months after it started. They even used a “Meet the Parents” joke to describe the economy, saying it is “strong … to strong enough”.

Meanwhile, investors don’t act like it’s still a recession. The biggest concern now is whether the economy will heat up too quickly, forcing the Federal Reserve to cut bond purchases and raise rates sooner than expected.

“Every recession is different and this one is unusual. But the market has clearly moved away from the pandemic,” said Matt Peron, director of research at Janus Henderson Investors. “Investors are focused on inflation. That’s risk number one, two and three.”

Fear the double dip?

Beyond fears that the Fed will withdraw the proverbial punch bowl and cut stimulus too soon, Peron said, investors also fear that the central bank will not act quickly enough to ease inflationary pressures before they fall. don’t get out of hand.

“The Fed has to walk a tightrope,” Peron said, adding that a central bank mistake could lead to a so-called double-dip recession, when the economy contracts again quickly after a recovery.

This is what happened after the historically brief recession of 1980, which, at just six months, was the shortest on record. A series of sharp Fed rate hikes contributed to a new recession that lasted from July 1981 to November 1982.

But many Wall Street pundits and economists believe the Fed won’t be forced to raise rates anytime soon or that inflation will go crazy.

“A period of persistent inflation driven by higher wages fueling higher prices could lead to tighter financial conditions and put this young expansion at risk,” Nuveen strategists said in a report on Monday. “But we remain in the camp that expects inflation to moderate from here.”

Policy makers believe the labor market and supply shortages caused by the pandemic are expected to ease soon. This will reduce the pressure on wage growth, a key component of inflation.

They also believe that companies have made enough investments to increase productivity, which should mean that they will not have to pass the costs of rising commodity prices on to consumers.

“We have probably already seen the highest monthly inflation readings of 2021,” Nuveen strategists said.

If so, the economy could continue to grow for the foreseeable future. The only question now is when the NBER will come out and officially declare the end of the 2020 recession.

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