Economy is Bouncing Back Ahead of Schedule, Says Wells Fargo Economist at InterFace Event
Just a few months after getting hammered by a pandemic-induced recession, the U.S. economy is rebounding faster than anticipated, according to Mark Vitner, managing director and senior economist with Well Fargo Securities.
During his keynote address to kick off the 11th annual InterFace Carolinas conference on Oct. 1, Vitner said the consensus estimate suggests U.S. real gross domestic product (GDP) increased at annualized rate of 30 percent in the third quarter. The Bureau of Economic Analysis will officially unveil its first estimate for third-quarter GDP on Thursday, Oct. 29.
If realized, the gain would nearly offset the 31.4 percent decline in GDP in the second quarter.
“This recession is the worst we’ve ever seen in terms of job loss and declines in GDP, but it was the shortest we’ve ever seen,” said Vitner. “All the decline we saw was in the second half of March and the first half of April. Since April 15 we’ve been recovering.”
Employers added 661,000 jobs to the U.S. economy in September, which was nearly 200,000 jobs below the expectations of economists surveyed by The Wall Street Journal. Still, the economy has recovered 11.4 million of the 22 million jobs lost since the beginning of the pandemic. Additionally, the unemployment rate fell 50 basis points from August to 7.9 percent in September.
Jobless claims still remain elevated from a historical perspective. For the week that ended Oct. 3, the number of initial unemployment insurance claims filed was 840,000, which is the lowest weekly amount during the pandemic but is still about four times more than a year ago.
Vitner said that jobless claims haven’t dropped dramatically yet because hourly workers at restaurants, hotels and other categories stand to make more money collecting unemployment than resuming their jobs. It’s interesting to note that retail workers, which Vitner said includes non-warehouse Amazon employees, have mostly gained back their jobs.
Many economists view the recovery as being a V-, U- or K-shaped recovery, the latter of which being a bifurcated one where jobs and income growth returns for upper class Americans, while those in the middle and lower classes do not.
Vitner agreed that the recovery has been uneven between salaried and hourly workers, but he characterized the recovery as taking a “bouncing swoosh” shape, meaning a long recovery with stops and starts along the way.
The economy is less reliant on stimulus funds than it was in the early months of the COVID-19 pandemic as monies from the $2.2 trillion CARES Act have been utilized. The Trump administration proposed a second stimulus package on Oct. 9 totaling $1.8 trillion to House Democrats. Multiple media outlets are reporting that the measure is unlikely to pass but that both sides are hoping to pass a second stimulus before the presidential election on Nov. 3.
Vitner said that overall, the recovery now has “sufficient momentum” thanks in large part to healthy consumer spending, home sales and homebuilding.
Discretionary income spent on goods grew 6.8 percent from February to July 2020, and Vitner pointed out that sales of durable goods like cars and electronics have been especially robust, growing 12 percent in the same time period.
“It’s more than recovered, we’re buying more goods than we did before the pandemic,” said Vitner during the full-day conference, which was held virtually.
The home improvement sector saw a healthy jump in activity the past several months. Same-store sales for Lowe’s Home Improvement increased 35.1 percent in the second quarter. The North Carolina-based retail chain also experienced a 135 percent bump in its online sales in that time frame.
On the flip side, consumer spending on services has declined 10 percent from pre-pandemic levels.
Back to the office?
The U.S. has regained about half the jobs lost in March and April, with employment in the professional services sectors such as tech, finance firms, utility companies and law offices leading the way.
Though office-using sectors are mostly back to pre-pandemic levels of employment, a majority of those jobs are now conducted at home for millions of workers and it may extend well into next year. Target recently announced that it will keep its corporate staff based in Minneapolis at home until at least June 2021.
Vitner warned about the risks of this approach during his address, but he did not cite productivity as his main concern.
“You can’t build or maintain a corporate culture working remotely,” said Vitner during the Q&A portion at the end of his session. “No one has shown it to work long-term. Tech experimented with it a few years ago unsuccessfully.”
Vitner conceded that one area where the economy will see a permanent shift to remote working is customer service centers as workers can handle inbound and outbound communications from their home offices.
Meanwhile, for the first time since the Great Recession demand for office space nationally has turned negative. In the second quarter, the U.S. office market posted 10.3 million square feet of negative absorption, according to CoStar Group.
For instance, Austin reported nearly 625,000 square feet of negative absorption through the first three quarters of 2020, according to CBRE. A majority of the move-outs were in the city’s central business district.
Despite the negative absorption overall, Vitner said he remains bullish on the office sector, especially in the urban submarkets of Charlotte and Raleigh.
“I’m not concerned about urban office,” said Vitner. “When we get past the pandemic, I’m confident that most office work will be done in office environments. Remote working will only expand the office pool. Six months from now, we’ll be back.”
— John Nelson
Those interested in replaying Vitner’s keynote address or view other sessions from the InterFace Carolinas conference can do so by registering here. The portal will remain open for four weeks from the conclusion of the conference.