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Initial Outlook: Economic Impacts of COVID-19

Economists: companies and individuals should brace for an adverse economic impact regardless of the coronavirus’ trajectory, but policy and protective measures will impact the duration of a recession

The COVID-19 pandemic is bringing with it global uncertainty, fueled by unknowns as to long-term impacts, duration and economic implications. “It’s a given we will have an adverse economic impact in the first and second quarters of 2020,” said Ali Wolf, chief economist of Meyers Research, during a webinar on March 18 about COVID-19 and its economic implications. “This also raises the possibility of a recession in the middle part of this year.”

Consumers comprise nearly 70 percent of the economy, said Wolf. With social distancing, quarantines, event cancellations and other protective measures in place, reduced consumer spending will have the greatest adverse impact on the economy. 

Wolf explained that, in a recession, the key datasets to track include real income and employment, industrial production, wholesale-retail sales and real GDP. Already going into 2020, CEO confidence was slow. Hiring plans now are being put on hold and some industries face the very real risk of layoffs. 

Wolf projects that markets with high concentrations of leisure and hospitality jobs will be most affected, such as Las Vegas, Orlando, San Antonio and San Diego. And, retail companies will be especially hard hit through closures and limited hours, said Wolf. China, which is about 1 ½ months ahead of the U.S. in its coronavirus trajectory, saw a 20 percent decline in retail sales at its latest reading.

Although economists predict ballooning numbers of jobless claims, some companies are hiring where they can, such as Amazon, which plans to hire 100,000 warehouse workers amid coronavirus-related shutdowns.

Slowing port activity and lower oil prices will put increased pressure on the already slow industrial manufacturing sector.

Short vs. long recession

Wolf presented two cases for recessions. The first is a relatively short recession for the first two quarters with a quick snapback in subsequent quarters. Although most recessions last an average of 11 months, she said this first scenario isn’t unprecedented. The 1980s, for example, had one recession that lasted only six months. According to the National Bureau of Economic Research, a “short but substantial drop in activity could be classified as a recession.” 

Case two, involves a long recession with no rebound in subsequent quarters. Possible drivers could be slower CEO confidence, the ongoing trade war with China, coronavirus, uncertainly surrounding this fall’s presidential election, low federal funds rate and high debt levels across many sectors. All of those hurdles except for the coronavirus existed prior to the outbreak. Wolf said high levels of debt are the main reasons for a “long and pronounced” recession.

Policy’s impact on the duration

Policy is the key differentiator between which case will happen. There are four reasons why the recession could be short-lived:

  1. Governments’ willingness across the globe to enact extreme containment measures.
  2. Stimulus to Americans directly. President Trump signed a $100 billion package on March 18 that provides free coronavirus testing, two-week paid leave up to $511 per day for certain Americans. His administration still wants to send stimulus checks directly to Americans.
  3. The potential for warmer weather to naturally slow the growth of the virus similar to the seasonal pattern for the flu.
  4. The potential for either a vaccine or medicine for other disorders to help.

Policymakers, said Wolf, are acting early and fast, unlike during the Great Recession. She said if coronavirus gets under control, the market will work through the correction without going into crisis mode. As of now, the effects of the coronavirus are classified as an exogenous shock rather than a more severe financial crisis. 

The Federal Reserve met earlier in March and, in a surprise to many, cut rates by 50 points. It met again shortly thereafter and cut rates by another 100 points, taking the rates to near zero. “They believe extreme measures are warranted and they’re doing it early,” said Wolf.

Housing opportunities exist

Housing opportunities still exist in the current climate. As Wolf said, shelter is a basic need; Americans always need housing. With reasonable confidence and job security, some opportunistic buyers could be excited about mortgage rates below 4 percent right now, making it a market with what Wolf calls “great affordability.” She said there’s a need to combat fear, exacerbated by social media, and assess actual accessibility.

Wolf encourages taking a long-term view: “We have to plan ahead and position ourselves to capture the pent-up demand fueled by COVID-19 uncertainty, changing lifestages, a rebound in the wealth effect and aging Millennials and Gen Z-ers.”

“While a slowdown in starts/closings could make it tempting to slow down land acquisitions, it is important to differentiate between short-term volatility and longer-term growth trends,” said Bryan Glasshagel, senior vice president of advisory in Texas. “Maintaining a lot pipeline is critical. When conditions stabilize, demand will return and builders need to be in a position to capitalize on that demand and not be in catch-up mode trying to tie up more lots/land.”

Wolf reiterated that data will be “close to useless” in the next couple months; rather, use logic and history. Layoffs and the duration of those layoffs ultimately will decide the length of this recession. 

Regardless, however, expect bankruptcies and bailouts. “That’s going to be scary,” Wolf said. “Those numbers will be dramatic, and it will be bad, but you have to put it in context. If we can get COVID-19 under control it can be something that turns around quickly. But, honestly, no one knows.”


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Laurie Cowin

Laurie Cowin is editor of Window + Door. Contact her at