Not a Cyclical Recession
It is essential to understand that this is not a cyclical recession. It is an economy-wide shutdown depression. The recovery will reflect what government allows us to do and what we decide we are willing to do. It will follow a trajectory like a butterfly flying uphill: basically upwards but slowly and with fits, stops, detours, and starts.
The U.S. economy hit bottom in mid-June and is now on a path toward rebuilding a stalled economy. It is useful to remember that the economy was quite strong prior to the virus reaching the U.S. Then the shutdown occurred, first for 14 days and eventually for about 100 days. It is still ongoing to varying degrees in different cities and states. In the second quarter of 2020, real GDP fell by 9.1% year-over-year (versus the post-WWII average recovery of 3.2%), and by a stunning annualized rate of 31.7%. Similarly, real per capita GDP was down 9.8% year-over-year through the second quarter according to the latest Linneman Associates letter.
All hiring stopped, businesses closed (many to never reopen), workers were furloughed and fired, and natural attrition through retirements and deaths occurred. With the retail, entertainment, and hospitality sectors largely shut down, we estimate that 55 million people at least temporarily lost their jobs.
Actual unemployment figures by the Bureau of Labor Statistics (BLS) Payroll Survey, ADP, and even BLS’ Household Survey are much too low, and employment too high, as the nature of the unemployment is so focused by industry, geography, and demographics so as to fool typical sampling techniques. We estimate that on an apples-to-apples comparison, the unemployment rate peaked at 22-25% in early June. Our basic math for estimating apples-to-apples unemployment compared to February 2020 is simple. There were about 5.8 million unemployed at the end of February 2020. Since then, 59.6 million new unemployment claims were filed and (at most) 30 million workers were newly hired over the same period, resulting in at least 29.6 million not working and an estimated apples-to-apples unemployment rate of 18% using the February labor force.
By comparison, the reported peak unemployment rate was 14.7% in April and has since declined to 8.4% in August 2020. The official rate reflects “only” about 13.6 million unemployed. The gap exists in part because millions of unemployed people have dropped out of the labor force and were not replaced by new entrants. This simply reflects the fact that people who would have normally entered the labor force realize it is a largely hopeless effort to seek a job. Going forward, we will use the official job data, but the reader needs to be aware that “unemployment” is higher than it appears.
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Parker Associates has worked extensively through the years on Multifamily housing demand and affordability. It’s always been an issue and likely always will be.
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David WB Parker is a principal of Parker Associates of Jacksonville, Florida, marketing consultants to the real estate industry; President of PTC Computer Solutions, IT Specialist, and an active real estate sales professional with Barclay’s Real Estate Group based in Jacksonville, FL. He can be reached at 904-607-8763 or via email email@example.com.