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Post COVID Pent Up Demand Spells Accelerating Economic Growth For 2021

Twelve months ago, very few had ever known the term COVID-19, but now the world has experienced the impact of the devastating contagion and can see the light, at the end of tunnel.  How quickly will the economy recover?

As the new year was ready to launch, MacRo, LTD Vice President, Ashleigh Kiggans, and I were blessed with an invitation to attend the 14th Annual Maryland Bankers’ Association (MBA) First Friday Economic Forum … and this time was its first virtual presentation on January 8th.

This year, instead of dressing in my Sunday Best, I strapped my iPad to treadmill and worked up a sweat during the two-hour presentation.  Who says old guys in their 70’s can’t multi-task!

Once again, our gracious hosts were members of the team at Woodsboro Bank.  I cannot give enough thanks to President & CEO, Steve Heine, but special thanks to Ric Paxton, Vice President and Commercial Banking Manager, for his hospitality.  As I state every year, this event is one of the highlights of my year.

MBA brought a highly respected panel of experts to the forum.  As usual, the master of ceremonies was the always entertaining and highly regarded Anirban Basu, Chairman & CEO of the Sage Policy Group, Inc., from Baltimore.  After he offered up what he sees in his crystal ball for the coming year, he moderated a trio of notable professionals to share their forecasts.

  • Mark McGlone, Chief Investment Officer of PNC Asset Management Group
  • Luke Tilley, Chief Economist for Wilmington Trust Investment Advisors
  • Jim Glassman, Managing Director and Head Economist for Commercial Banking at Chase/J. P. Morgan

Here are some of Basu’s very insightful predictions:

  1. With an addition Federal stimulus forthcoming, demand will get a boost; however, with a constrained supply due to a hopefully fading lockdowns, the economy will gradually improve.
  2. This will result in a US savings rate to climb, once again, which will “spring load” the economy for rapid growth, once vaccines become broadly available.
  3. The 2nd half of 2021 should be “spectacular” for economic growth.
  4. But Basu believes that a period of reckoning will likely occur in the years ahead as the deficit hawks return to the forefront expressing a need for greater austerity in the years ahead.

All three of panel members agreed with each point, with the exception of Jim Glassman, who feels strongly that the “spectacular” growth that Basu foresees in the latter half of this year is only the tip of the iceberg.  Essentially, Glassman, who has been professing strong economic optimism for the last ten years, believes the advances in the technology that we have experienced in recent years has placed us on the verge of exponential economic growth the likes of which the US has not experienced in modern times.   No kidding … and I think he is right!

For many who suffered losses of family members, jobs and even their businesses, such a statement seems like pure lunacy.

Glassman says despite the difficulties businesses experienced from the contractions of last spring and this winter; on a broader perspective, we haven’t seen such damage since the Great Depression.  But as Basu states, with a recovery in the wake, it is more realistic to expect the coming rebound to happen quickly – not unlike that after a natural disaster.

“A full economic recovery likely won’t be possible until an effective vaccine is widely distributed, and the virus is contained,” says Glassman.  Hopefully, we will be able to claim a victory by the middle of the third quarter.

Chase’s head economist summed up his visions for the year ahead, in a recent online post:

  1. GDP is already closing in on its pre-pandemic high. Output has climbed to 98.7% of its February 2020 peak.
  2. The household saving rate almost doubled last year to 12.9%. This could translate into a potential $1.5 trillion supporting pent-up consumer demand as the pandemic subsides.
  3. As life returns to normal, forecasts call for real economic output to expand at 5% or greater in 2021, bringing a steady return to full employment.
  4. The Fed is continuing to provide monetary support. The target for short-term interest rates remains pegged at zero, and long-term interest rates are resting 2 percentage points below their theoretical equilibrium.
  5. Workforce recovery has considerable ground to make up—the economy remains approximately 10 million jobs short of full employment. The Federal Reserve anticipates steady job creation throughout 2021, with the median forecast calling for unemployment to fall to 5% by year’s end.  However, would not be surprising if the fourth quarter saw unemployment returning to the 3.5%-4.5% range of recent years.
  6. Inflation worries are premature: Despite a $3.3 trillion federal deficit, inflationary pressure is unlikely to appear anytime soon.
  7. Equities investors are optimistic that coronavirus disruptions will soon fade, allowing globalization and digitization to continue lifting profits in 2021.

But what about the real estate market?  What lasting impact will come about from the COVID pandemic?

Ah, there is so much to share … and I am out of space in this post; so, stay tuned for an upcoming post dedicated to the outlook for the winners and losers in the world of terra firma!

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Rocky Mackintosh, President of MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland, has been an active member of the Frederick community for over four decades. He has served as chairman of the board of Frederick Memorial Hospital and as a member of the Frederick County Charter Board from 2010 to 2012.  He currently serves as chairman of the board of Frederick Mutual Insurance Company. Established in 1843, it is one of the longest enduring businesses in Frederick County.

 

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