Here, then There, then COVID’s Everywhere:

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Photo by Tiffany Tertipes on Unsplash

The pandemic’s tragic path from cities to farms—and from blue America to red

COVID-19 is sweeping widely through the country. Again. But each wave is hitting different political groups as it infects new areas. In the first part of my analysis of America’s growing political divide, I showed how voters are increasingly polarized by where they live; in the second article, I documented growing geodemographic differences among voter blocks. In this article, I chronicle the pandemic’s spread from urban areas to rural, and from blue regions to red. Population density certainly explains much of the spatial differences, as the virus advances chiefly through social interaction. But politics and social attitude bear much of the blame for COVID’s greater and more deadly march through red America. Part 3 in an occasional series examining the growing divide between red and blue communities.

This article was originally published on Medium.

What a Biden Tax Plan Might Hold for Commercial Real Estate

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President-elect Biden’s policies are likely to mark a distinct departure from those under the Trump Administration and, in many cases, won’t be as favorable for the commercial real estate sector. But a full accounting of the expected policies presents a range of plusses and minuses for the industry. In the first of a two-part article, I examine the tax proposals.

With one of its own in the White House, the commercial real estate sector was treated well by the Trump Administration. The property industry benefited from generally pro-business policies and as well as more relaxed banking and environmental regulation. Investors benefited from President Trump’s signature legislative achievement, the Tax Cuts and Jobs Act (TCJA) enacted in late 2017. The new tax code provided some new special benefits for the industry, including opportunity zones, a 20 percent pass-through deduction for certain types of qualified business income, and bonus depreciation for certain assets. The TCJA also lowered tax rates on both corporate and individual income, reducing tax liabilities for commercial property owners. And perhaps more importantly, the law preserved several significant benefits that already existed—notably tax-free 1031 exchanges and carried interest—that had been targeted in earlier versions of the legislation.

This article was published on Propmodo.

The Jobs Market Is Shouting That We Need A Second Stimulus Package

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different dollar bills on marble surface

Our economy is on the mend. So far, we’ve recovered more than half the jobs, three-fourths of the economic output (GDP), and seven-eighths of personal income (net of government support) that we had lost in the initial downturn.

And there’s been plenty of welcome economic news in the past few weeks. Both retail sales and the leading stock market indices are at record levels. Metals prices are soaring, signaling that businesses believe a global recovery is in sight. And perhaps most importantly, almost all of the leading indicators are glowing green, as documented in Hale Stewart‘s excellent summary in his article discounting the probability of a double-dip recession. Most economists seem to agree: the latest Wall Street Journal survey found the odds of another recession occurring in the next 12 months continue to decline and now sit at pre-pandemic levels.[*]

And yet, there is ample room for concern—and a clear need for another significant aid package. To be sure, we’re certainly in a much better place than we were at the beginning of the pandemic when the economy was in freefall, and Congress had to step in with a massive stimulus package to prevent an absolute economic meltdown. But dig just beneath the upbeat headlines, and the economic story isn’t nearly as positive.

Among the conclusions:

  • Recent positive economic headlines and buoyant equity markets provide misleading pictures of current economic trends and the near-term outlook.
  • Key labor market indicators show that the economy is already slowing sharply, well short of a full recovery, and risks actually turning down again this winter.
  • Most worrying is the ongoing historic pace of layoffs and the growing share of long-term unemployed workers, magnified by the surging spread of COVID-19.
  • A looming cutoff in unemployment benefits for millions of jobless workers would devastate household finances and further depress consumer spending.
  • Another robust stimulus package is needed to help jobless workers and small businesses survive until the vaccine begins to restore normal economic activity in the spring.

This article was published on Seeking Alpha.

Don’t Buy the Hype: Four Signs the Recovery Is Less Than It Seems

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Recent positive economic headlines are easily misinterpreted. The record growth we’ve enjoyed follows even greater downturns and leaves us well short of prior levels on most key measures. With the recovery slowing across the board, a full rebound is not yet in sight.

The latest government reports have brought a spate of upbeat U.S. economic headlines. Last month, the Bureau of Economic Analysis (BEA) said that real GDP grew 7.4% in the third quarter, doubling the prior quarterly record growth and reversing most of the pandemic’s initial plunge in output. Then the Census Bureau reported that retailers posted their fourth straight month of record sales in October, and sales now exceed their prior peak logged in January.

More recently, the BEA said that consumer spending (which includes retail sales as well as other items like housing and health care) rose again in October for the sixth consecutive month. Meanwhile, And then just this past week, the Bureau of Labor Statistics (BLS) noted that employers recorded their seventh straight month of strong job gains.

So, plenty of welcome economic data, and certainly better news than this spring. But while technically accurate, the headlines provide a misleading narrative about the economy’s strength and near-term outlook.

This article was originally published on Medium, but you can also download the article here.

What Does A(nother) COVID Spike Mean for Retail Real Estate?

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Winter is arriving early this year for the economy, no matter what the thermometer reads. With the coronavirus infection spreading wildly throughout the country, people are returning to their home bunkers and economic activity is again slowing—and the retail sector will bear the brunt of the impending damage.

You wouldn’t know it from the headline retail sales figures though. After plunging at record rates in the early weeks of the pandemic, retail sales (seasonally adjusted) have climbed back almost as fast and now sit more than 4% higher than before the recession. These gains are all the more remarkable in the middle of a recession when nearly twice as many people are unemployed now than at the beginning of the year, and millions more workers have dropped out of the labor force or otherwise experienced sharp income declines.

But look beneath the topline trends and conditions are not nearly so positive, particularly for physical retailers. Sales grew by less than 0.3% in October, after averaging 1.4% gains over the last three months. Meanwhile, sales at the nation’s shopping centers actually declined by 0.6%—their first monthly decline since April—once we exclude e-commerce and sales at other “nonstore retailers.”

With the uncontrolled spread of COVID infections, just as Americans face the expiration of unemployment benefits and other income support from the CARES Act, conditions are likely to deteriorate further in the coming weeks. Already credit card transactions and other high-frequency spending data show are consumers are pulling back and staying in. Another stimulus package from Washington would help, but likely will arrive too late to save the holiday shopping season—if a new aid package comes at all.

This article was published on Propmodo on November 28, 2020.

Holiday Spending Gets Rough Start and the Outlook is Weak

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U.S. retailers logged another month of record sales in October, but overall retail trends weakened significantly, with spending in physical stores actually declining for the first time since April. And with COVID infections spreading wildly and consumer financial health deteriorating, sales in shopping centers are poised to decline again this autumn and winter, particularly in restaurants and indoor malls.

Overall the 2020 holiday shopping season looks to be the most challenging in years. I published two related articles on the retail sector on Seeking Alpha:

Retail Sales Trends Reveal Early Winter Chill – In the first part of this two-part analysis of retail sector conditions, I assessed recent trends based on October’s retail sales figures and other consumer metrics, concluding that retail sales have deteriorated significantly, particularly in physical stores, and conditions seem likely to soften further this autumn and winter.

Holiday Spending Looks To Disappoint Even Modest Forecasts – In this concluding analysis, I present my holiday outlook, including a more specific look at impacts on the retail REITs.

Record GDP Growth Masks Core Weakness—and One Surprising Upside (That Just Might Get Us Through The Dark Winter)

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The first estimate of third-quarter GDP growth far exceeded the reigning record for economic growth in a quarter—despite still onerous constraints on economic activities. The Bureau of Economic Analysis (BEA) estimated quarterly real growth of 7.4% over the second quarter, or 33.1% on a seasonally adjusted annualized rate, topping even bullish consensus forecasts. Meanwhile the Bureau of Labor Statistics last week reported that employers continue to add an impressive number of jobs—also topping estimates—even if the pace keeps dropping.

But my close review of the GDP report and supporting documents reveals some surprising details, both good and bad. Among my findings:

  • The strong growth was fueled by massive government stimulus that accounted for 16.5% percent of all personal income during the second quarter and 9.3% in the third—and is now disappearing.
  • Even after this historic growth, output remains 3.5% below its level at the end of last year—which alone would rank among the greatest economic contractions ever recorded.
  • Economic growth has been slowing in recent weeks and fourth-quarter growth is certain to be much slower, particularly as COVID cases again surge and business restrictions return.
  • However, downside risks will be mitigated by a huge spike in personal savings, which should enable consumers to keep spending this winter even absent further government stimulus.

You may read and download my analysis here.

The Recession Is Over! But Don’t Get Too Excited Just Yet.

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Photo by Andre Hunter on Unsplash

Next Thursday (October 29) the Bureau of Economic Analysis will release its first estimate of economic growth for the third quarter of 2020. Almost certainly it will set records for the greatest absolute and percentage quarterly Gross National Product (“GDP”) gains since the government started calculating national income accounts just after WWII.

Time to pop the champagne? Not quite yet. Just because a recession is officially over doesn’t mean that the economy has healed. On the contrary, a recession is deemed to have ended once it hits bottom, not when it gets back to its pre-recession peak.

If GDP grew by, say, 30% in the third quarter—consistent with consensus forecasts—the level of economic output would still be $800 billion or 4% below its year-end 2019 level. That may not sound like much, given the wild gyrations in economic activity during this pandemic, but that’s still nearly twice the entire 2.1% decline in GDP averaged during the last five recessions. Further, employment at the end of September was still down 10.3 million jobs or 6.8% from the end of last year. So, still a long way to go.

The key takeaways from my analysis of the current and recent recessions:

  • With record economic growth and hiring this summer, we may soon learn that the recession is already technically over.
  • But the end of the recession doesn’t mean the economy has recovered, only that the worst is behind us in terms of lost economic output, income, and jobs.
  • Expect the recovery in GDP to take another year, while regaining the lost jobs will take closer to two years. That’s just to get back to pre-pandemic levels. Getting back to the former trajectory—regaining the lost growth as well as the lost output and jobs—will take longer still.
  • Investors should be mindful that the path forward will be slow and uneven, even after the recession is declared to be over.

You may read my analysis here.

Polar(ized) Opposites: A Nation Divided by Politics, Geography, and Demographics

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No sentient American could be surprised to read that our political landscape is deeply polarized. But less understood, bordering on shocking, is just how wide—and wide-ranging—the physical divide has become. Far beyond the ideological differences between our two major parties and their followers, we are increasingly separated by geography and demographics.

True, our recent national elections have tended to be relatively tight and are much closer now than in prior centuries (though in recent days the 2020 Presidential race seems to be heading for a blowout). But as a country, we’re much more divided by where we live. Voters today are increasingly likely to be surrounded primarily by like-minded electorates—not just in the virtual worlds of social media, but in the physical world of actual neighborhoods and communities.

The vast majority of counties now are either solidly red or blue, with a rare few staking a middle “purple” ground. This is especially true for Republicans, who account for the overwhelming share of the most partisan counties. The two major parties are also divided by demographics, with Democrats tending to reside in larger, more affluent, more diverse counties compared to the much smaller, less affluent, whiter Republican counties. And all of these tendencies have been intensifying in recent decades.

No wonder our representatives in Washington find so little common ground: their voters come from different worlds—or at least much different places with sharply diverging demographic profiles.

In this report I revised and expand the analysis of the political landscape I published in July. You may read the new version here.

Healing but Hurting: Women Faring Worse in an Ailing Labor Market

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Half a year after the U.S. job market began to crater from the COVID-19 pandemic and ensuing lockdowns, the recovery is far from complete. The key takeaways from my deep dive:

  • Despite record monthly job growth this spring and summer, we have recovered only half of the lost jobs lost during the frenetic initial weeks of the pandemic.
  • The jobs recovery is stalling as “temporary” furloughs convert into permanent job losses, hiring slows, new claims for unemployment remains stubbornly high, and more layoffs loom.
  • Unlike recent economic downturns, this pandemic recession is hurting women more than men, with relatively more women suffering job losses or otherwise exiting the labor force.
  • Together the gathering headwinds suggest that the recovery will slow further or even reverse absent another round of robust stimulus. Accordingly, a full jobs recovery will take at least until early 2022 and likely longer.

The COVID-19 Recession is unprecedented in so many ways: the ferocity and speed of the downturn, the strength of the initial recovery, the disruptions to our normal lives. To these overall impacts, add the greater impacts on women, the opposite of the typical pattern in a recession. Relatively more women have lost their jobs because this recession, unusually, has hit services jobs harder than good-producing jobs. And more women are dropping out of the labor force altogether to care for their children as schools and day-care remain shuttered in much of the country.

It has become abundantly clear that our nation cannot fully heal, and the economy cannot get back to pre-pandemic levels, until it is safe for people to work, shop, socialize, and recreate as they did before. Much of the nation’s productive capacity will remain idle or underutilized until we have effective COVID-19 treatments and/or vaccines.

Even if the extraordinary August job gains were maintained going forward—which would be highly improbable given the slowing job growth and gathering headwinds I discussed here—we wouldn’t regain all the lost jobs until early 2022. Most likely, it will take considerably longer. In the meantime, women will bear a disproportionate share of the economic pain.

Read my six-month scorecard report for the U.S. labor market.