There are certainly some areas of the economy that are still far from pre-February 2020 levels, such as small businesses, retail and restaurants.
And in a lot of big cities it’s pretty much back to normal.
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.