There’s an overwhelming amount of data and headlines circulating. This column is my attempt to make sense of it all for you, the real estate professional, from an overall economic standpoint.
It’s been just over seven weeks since the COVID-19 outbreak led to the first shelter-in-place orders being made. Since that first proclamation, over 30 percent of our nation’s businesses have shuttered, and 80 million Americans have been told to stay at home. With those businesses closing, over 33 million workers have filed for new unemployment benefits.
Well, we are now almost two months into this profound economic contraction. So, I thought it would be a good time to take a closer look at the job market and share my forecast for the rest of this year, mainly because jobs and job growth are very important when it comes to the vitality of the country’s housing market.
But I must start out by saying that the outlook is still pretty hazy, and my forecasts do rely heavily on two factors. The first is that we don’t see a second wave of infections across the country that forces another nationwide shutdown.
And second, that consumers — as they reemerge from their homes and into the light of day — get back to doing what they do best, and that’s spending money!
Let’s take a look at some numbers
Up until March, the country was adding jobs at a pretty healthy pace, with around 178,000 new jobs created per month last year, and an average of just over 244,000 per month in the first two months of this year.
With the pandemic hitting in mid-March, and businesses starting to close, the country lost 870,000 jobs — a remarkable number — in the month. However, we were just getting started. The real effects of COVID-19 were not felt until April, when the country saw employment levels drop by a massive 20.5 million.
This number is truly unprecedented, so let me put it in some sort of context. I dug deep into the U.S. Bureau of Labor Statistics’ historical data, and the biggest monthly drop in U.S. employment I could find was way back in the fall of 1948 when employers let go of a mere 838,000 workers.
That’s looking backwards, so what about the future?
If the country starts to reopen in June, and if we are essentially fully open for business by the end of July, this is how I see employment numbers moving.
The job losses seen in March turned growth negative for the first quarter, but it’s during the second quarter when we will feel the full impact of COVID-19 with average job losses of around 8.4 million every month in the quarter.
But as we move further into the summer months and the country reopens for business, I do expect to see workers return to their jobs. This will boost total employment by an average of just short of 470,000 jobs per month in the third quarter and another roughly 700,000 jobs per month in the final quarter of the year.
The big unknown, obviously, is not whether COVID-19 will return this winter (I think that’s indisputable), but what effect it will have. This will be driven by whether we have a vaccine or inoculation by then.
Well, I am an economist, not an epidemiologist, so I can’t opine on that particular topic. However, according to the World Health Organization (WHO), there are over 100 companies across the globe working on treatments, so there’s reason to be hopeful that new infections, if they do come back in the winter, will not be bad enough to shut the country down again.
What is the makeup of job losses?
We’ve talked about the headline employment numbers, but I think it’s also important to look at the makeup of job losses, as it’s really quite telling.
Regular followers of mine may remember me saying that job losses are mainly focused on the leisure and hospitality, and the retail sectors of the economy. This is supported by data.
Over the past two months, the leisure and hospitality sector — which includes hotels, bars and restaurants — has shed over 7.5 million jobs, and the retail sector has lost just over 2 million jobs.
These two sectors alone account for just about half of all job losses — but other sectors are also being hit.
Healthcare has lost just over 2 million jobs. Now, this may be counterintuitive given the current situation, but it’s mostly because dentists and other general doctors’ offices have been considered nonessential and have closed.
Also of note is the professional and business services sector with significant job losses seen, unsurprisingly, in travel agencies and general employment agencies.
Given the makeup of jobs that have been lost, it’s not surprising to see that the pandemic has hit the rental housing market far harder than the ownership market as a significant number of job losses are in lower paying positions.
This theory is also supported by unemployment figures. The unemployment rate for workers with a high school diploma was just over 17 percent, while the unemployment rate for college graduates was just under 8.5 percent. This again supports the theory that job losses have been centered around lower income jobs.
Since we’re talking about unemployment rates, let’s take a look at where we are and where I think we will end up by year’s end.
What do unemployment rates look like?
The April unemployment rate was a really terrible 14.7 percent, and I am afraid that it will rise even more over the next two months before starting to fall.
Part of the reason I anticipate that we will see jobs return, and the unemployment rate pull back quite significantly, is that 88 percent of new unemployment claims in April were from people who were defined as being temporarily laid off. This suggests that they will return to their jobs at some point — hopefully sooner rather than later.
But you will also see from my forecast that, even as jobs return and the unemployment rate drops, we will not come anywhere near the level we saw back in February.
The reason for this is that, even as businesses reopen, it’s quite likely that they may not need the same number of workers they had before COVID-19 struck. This will force workers to look for different jobs.
I also believe that hotels, restaurants and bars will feel this more than any other sector. Hotels will likely need fewer workers until businesses and households decide that they are going to travel again.
As for bars and restaurants? Well, when they reopen, social distancing protocols will likely mean fewer tables, which will therefore require fewer workers. And, sadly, with the significant financial hit that bars and restaurants have already taken, it’s quite likely that many may never be able to open their doors again.
And there you have it.
It’s clear that we are going through a remarkably tough period right now, but my glass remains half full. I would tell all of you to hang in there for another couple of months and, all things being equal, you will see the second half of 2020 as being considerably better than the first.
I hope that you have found today’s comments of interest. As always, if you have any questions or thoughts about this topic, I would love to hear from you.
Matthew Gardner is the chief economist for Windermere Real Estate, the second largest regional real estate company in the nation.
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