Signs the 2020 recession may already be over

The official arbiter, the National Bureau of Economic Research, did not say this downturn was over. But it definitely feels like that Economy is back in recovery mode with optimistic signs for jobs, housing and stocks.
Some experts believe this recession is a reflection of the 1918 recession, also triggered by a pandemic: the global flu outbreak. This downturn lasted and was only 7 months the second shortest on record.
Could the Covid recession take a similar path? We have to wait for a decision from the NBER, the organization that explains the start and end of economic cycles – which usually takes several months for a recession to end explain the end.

There are certainly some areas of the economy that are still far from pre-February 2020 levels, such as small businesses, retail and restaurants.

But many areas are getting better. GDP is growing again and has been rising for the last three quarters after falling in the first half of last year. The Labor market is recovering also, as workers in severely affected service sectors find employment again. Profits have rebounded, along with that Stock market. The Real estate market continues sizzle.

And in a lot of big cities it’s pretty much back to normal.

“We are no longer in the downturn. Things are incredibly resilient and it’s almost an euphoria,” said Ivan Kaufman, Chairman and CEO of Arbor Realty Trust (APR), a real estate company that provides loans to homeowners and commercial real estate firms.

Default rates are relatively low for the customers of Kaufman’s company, he said, adding that rents – which suffered a brief slump last year – are starting to rise again. The demand for rental contracts is also increasing.

The demise of urban America may be an exaggeration.

“The problem with Covid was that no one went into the cities,” Kaufman said. “This phenomenon has created some jobs. But that’s over.”

‘Strong … to quite strong’

Urban real estate isn’t the only economic sector that has returned. Money management firm ClearBridge Investments has a recession risk dashboard that examines a dozen economic indicators, including retail sales, residential property, commodity prices, the labor market, and trucking.

ClearBridge said earlier this month that most of these measures bottomed in May 2020 and all 12 indicators are now showing signs of recovery.

ClearBridge analysts said in a report that with this in mind, they believe the recession could end about a year ago – just four months after it began. They even used a joke from “Meet the Parents” to describe the economy, who said it was “strong … to quite strong”.

In the meantime, investors are not pretending that this is still a recession. The biggest concern now is whether or not the economy is heating up too quickly, forcing the Federal Reserve to cut bond purchases and raise interest rates earlier than expected.

“Every recession is different and this is unusual. But the market has clearly moved away from the pandemic, ”said Matt Peron, director of research at Janus Henderson Investors. “Investors focus on inflation. It’s risk number one, two and three.”

Afraid of the double dip?

Aside from concerns that the Fed may take away the proverbial punch bowl and cut incentives too soon, Peron also says the central bank will not act fast enough to dampen inflationary pressures before it gets out of hand.

“The Fed has to master a tightrope,” Peron said, adding that a central bank mistake could lead to what is known as a double-dip recession if the economy quickly shrinks again after recovering.

It did so after the historically brief recession of 1980, which at just six months is the shortest on record. A series of sharp rate hikes by the Fed contributed to another recession that lasted from July 1981 to November 1982.

However, many Wall Street experts and economists believe that the Fed will not be forced to hike rates anytime soon, or that inflation will run amok.

“A period of sustained inflation, driven by higher wages leading to higher prices, could tighten financial conditions and put this young expansion at risk,” Nuveen strategists said in a report Monday. “But we stay in the camp, which expects moderate inflation from here.”

The strategists assume that the labor market and the supply shortages caused by the pandemic will soon ease. That will ease the pressure on wage growth, a key component of inflation.

They also believe that companies have invested enough to increase productivity, which should mean they don’t have to pass the cost of higher commodity prices on to consumers.

“We have probably already seen the highest monthly inflation rates of 2021,” said the Nuveen strategists.

If so, the economy could continue to grow for the foreseeable future. The only question now is when the NBER will actually come out and officially declare the end of the 2020 recession.

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