Insights on COVID-19’s Impact on the Economy

“At work, on the go, at home. Work happens everywhere.”

Thank you to Stacey Boston from Hayworth for inviting me to Hayworth Connect which allowed me to listen to the March 26, 2020 webinar with Dr. Marci Rossell.  Dr. Rossell shared her insights and opinion of the impact of the COVID-19 pandemic on our economy.

There is so much uncertainty with the current situation, however some of Dr. Rossell’s insights seemed reassuring. Below are a few of her insights that resonated with me.

COVID-19 is a shock to our economy that came from the outside. She talked about how it impacts our economy in three ways: loss of income, effect on the stock market, and change in uncertainty.

Loss of Income

In most recessions, the loss of jobs is a lagging indicator. In other words, in most recessions there are liquidity or solvency problems resulting in loss of jobs.  Due to social distancing and closing of active businesses, we have a big spike in unemployment claims and job losses. Dr. Rossell mentions that this is not a solvency crisis, rather a shock coming from the outside and the government needs to mitigate the loss of income and turn on the revenue spigot.

Stock Market   

In 2008, 50% of the market evaporated and recovered around 2010 but took about four years to completely recover. Dr. Rossell thinks the current situation looks more like 1987, which took less than 2 years for recovery. She mentioned different shapes of the economic curve used to describe recoveries, but it was her concept relating social distancing and the bottom of the curve that struck me the most. She stressed that as long as we practice social distancing, we will be along the bottom. 

Uncertainty

Dr. Rossell explained some of the effects uncertainty can have “on the long term risk environment.”  She noted that savings rates will increase worldwide. For example, in 2006, the US savings rate was zero. It rose to 8% in 2018. She predicts this will climb up to 10% after this crisis and anticipates it will put downward pressure on interest rates.

It was comforting to hear that this will be temporary, with social distancing in place two months, 3 months, or 6 months. Dr. Rossell is 99% sure this crisis is not the same as the Great Depression that spanned over a decade and began with bank failures, widespread drought, and crop failures. She mentioned that policy makers have learned from the mistakes made in the past. 

It was interesting to hear her answers in a Q&A discussion about the effects on commercial and residential real estate. As far as commercial real estate, she said it depends on which industry and where you are located. One example was that the conference industry will not recover until we have a vaccine. Cities like Los Vegas will suffer as a result.  Retail commercial estate is different. The retail industry was having trouble before COVID 19. Companies may recognize they need less square feet of office space., but will likely demand a more high end space for when clients visit and for employees when in the office.. One key point about residential real estate was the projection that Gen Xers and Millennials will want larger homes in order to work from home more.

This concludes my key takeaways from this webinar, however it was jam packed with useful information. Thank you to Hayworth for implementing Hayworth Connect to share engaging and inspiring speakers to enlighten their clients and community.