As part of our ongoing Virtual CLE webinar series, we were thrilled to invite world-renowned economist and financial expert Marci Rossell for a candid Tax-Day conversation on the 2021 economy, COVID-19 impact and what to expect for your business as we move toward the back half of 2021.
As anticipated, the Expert Economic Forecaster, Former CNBC Chief Economist and Co-Host of SQUAWK BOX did not disappoint! Over 100+ folks joined Rossell for the one-hour CLE event, leaving with a sense of optimism for the state and future of the industry, and tactical advice on how to move forward. If you couldn't attend live to receive your CLE credit, read on for a brief recap of the valuable information shared on April 15th and to learn why Rossell's forecast is largely optimistic!
The COVID-19 Pandemic and resulting 2020 economic collapse did not mirror the same patterns that we've seen in previous economic crashes. In many cases, unemployment gradually increases as a result of an inciting event, such as the collapse of Wall Street in 2008 resulting in lingering effects on employment for months and years to come. At the beginning of the COVID-19 pandemic however, unemployment was immediately impacted as businesses responded to government-mandated shutdowns and an anticipated lack of patronage with mass reductions in staff. At the start of this pandemic, unemployment was around 20% versus 6% currently, with low income populations being disproportionately affected. What this means, is that we have largely recovered from the unemployment crisis much unlike previous crashes where an impacted economy had longer lingering implications for unemployment. As more and more Americans are getting vaccinated, and organizations are moving closer to "business as usual", Rossell is hopeful that we can expect for unemployment rates to continue to decline.
Pointing to the positive state of personal finances, Rossell noted that Wells Fargo claims that delinquencies are at an all-time low, with the renters market struggling the most due to the fact that unemployment was and is disproportionately affecting lower-income communities, particularly those people making $27,000 annually or less. That being said, the US government offered 3 waves of economic relief and anticipates any future relief efforts to be more targeted toward these communities versus a blanket stimulus across the board. Rossell also noted that the inability to travel, entertain, and consume products in normal pre-pandemic ways positively impacted Americans' ability to increase their savings also helping to offset the initial loss of income. Rossell anticipates many Americans utilizing these nest eggs for expenditures, travel and consumption in a big way as we continue to see an increase in vaccination rates and loosening restrictions on travel.
Per Rossell, it's also very important to distinguish between income and wealth: income referring to taxable wages and wealth meaning investments in stocks, bonds and real estate. While unemployment and the economy were both initially negatively impacted at the start of the pandemic, in many instances stock prices (or wealth) are actually at higher levels than they were pre-pandemic. This is in part due to a surge in tech acceleration. A massive increase in online shopping, heavy reliance on technologies such as Zoom, GotoMeeting and virtual meeting software, coupled with tele-health visits, and social, religious and fitness gatherings happening via technology, companies such as Amazon, Zoom, and Microsoft have benefitted greatly and permanently from the pandemic, resulting in benefits for their shareholders as well.
The downside to this of course is that smaller businesses suffered disproportionately, in many cases due to a general lack of cash flow. Unlike larger corporations, small businesses are less likely to have as little as two months of cash flow on hand and less likely to have insurance. As a result, 31% of small businesses closed permanently, which in turn translates into few smaller competitors for larger corporations.
2020 was also an unintentional case study of the impact that remote work has on productivity and the overall bottom line as companies were forced to test the waters. Resultantly, we are likely to see a permanent change in the demand for the ways in which people live and work. One cited study revealed that people value their ability to work from home as much as 8% of their wages. In other words, someone making a salary of $100,000 would be willing to accept a salary of $8,000 less per year for the ability to work remote. Moving forward, as long as people continue to be just as productive working remotely as they are in a physical office - as many did and proved this past year - we will likely see a continued demand for remote workers to work not just from home, but from anywhere. Rossell dug into how this demand would specifically impact commercial real estate.
It logically follows that an increase in remote workers, results in a decrease in demand for commercial real estate space and as such a price reduction. Rossell also cited that Google searches for the phrase "are we in a housing bubble" increased by 2400%, demonstrating just how top-of-mind residential real estate is to the American public. In terms of residential real estate expectations, Rossell predicts that across the board people have been and will continue to be searching for increased and higher quality spaces to live and work from home, resulting in a continued demand for residential properties. Rossell also predicts that in the next 2-3 years, we will likely see a decline in empty-nester Baby Boomers downsizing. Those who potentially would have abandoned their larger suburban houses pre-pandemic will likely stay put given the pervading uncertainty over what's to come next. Low inventory is also a factor in making that decision, as it impacts potential sellers' ability to relocate in the absence of having options on where to move.
Rossell hypothesized a potential solution for lack of residential inventory. As demand for commercial real estate decreases along with pricing, commercial properties could and perhaps should be reconfigured and reimagined as residential spaces. In an economy where organizations no longer necessitate retail or office space as much as they require warehouse space, converting these spaces to residential spaces could be a likely solution.
Rossell also noted the mass exodus of Americans from larger US cities, with places like Austin grabbing people from Los Angeles, and cities like Atlanta, Nashville and Charlotte attracting former New Yorkers, thus benefitting real estate companies in these markets specifically.
Another source of Rossell's optimism resulted from her observation that the federal reserve has taken extraordinary steps to prevent lingering negative effects from the pandemic, in many ways that they hadn't in the most recent economic collapse of 2008. In Rossell's words, 2008 was a "dress rehearsal" which allowed our government to create "as much firepower as possible" to allow for the stabilization of the financial market longer term.
With an optimistic forecast for the back half of the upcoming year, we at CTIC & CLTIC are continually dedicated to providing value to your business growth while continuing to navigate our new normal.
For more valuable tips from the CTICGA team, check out our last 3 CLE Hour and CE hour event!
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This recorded UThrive CLE covered the following topics:
If you missed our first Live UThrive digital CLE and CE event, it's not too late for you to get your CLE credit hours! Register here to gain access to view the recorded event!
