Record GDP Decline Was Concentrated and Front-loaded, Making Recovery Possible In Not-So-Distant Future

Maybe economic damage from the coronavirus is more contained than collateral.

Declines in the nation’s second quarter Gross Domestic Product [GDP] were concentrated in a few industries, making it more likely that the economy can begin to recover by the second half of this year or the first half of 2021, says Calvin Schnure, a senior economist at the National Association of Real Estate Investment Trusts (Nareit) during a weekly podcast.

Schnure said the second quarter GDP figures released the first week of August showed a 32.9 percent annualized rate of decline. He said the quarterly figure was in line with expectations but added, “the economic decline was front-loaded,” as state-imposed shutdowns took effect.

“The monthly pattern showed a very steep decline in April, really a trough, since then there’s been a relatively robust inactivity in the May-June into July period as the economy is reopening,” Schnure said.

“It points up a big risk. With the resurgent cases of COVID-19, we may see this reopening on hold and some slippage of some of these gains,” said Schnure during the podcast.

The surge of COVID-19 cases in recent weeks in some parts of the country, including the Southwest and Sunbelt, has cast some doubt as to whether the highly contagious respiratory disease can be contained.

Likewise, the declines in GDP were highly concentrated in a few front-line sectors, such as healthcare and hospitality, that were likely impacted by social distancing restrictions intended to minimize the spread of COVID-19. said Schnure.

The Nareit economist said hospitality accounted for a third of the total GDP decline but was only 6.0 percent of the overall economy. Likewise, many postponed doctor and dentist visits during the lockdowns, explaining why healthcare took a hit, said Schnure.

“We’re more likely to see a good recovery in the second half of this year or probably the first half of next year as the pandemic comes more under control,  [and since]  the weakness is so closely tied to these few areas,” added Schnure.

On monetary policy, Schnure lauded the Federal Reserve’s July 29 decision by Chairman Jerome Powell to keep the interest rate unchanged to support our economy and banking system. While recently testifying on Capitol Hill, Powell stressed that there can be no economic recovery until the coronavirus is brought under control.

Schnure said the release of REIT second quarter earnings reports later this month will show data center and industrial REITs as having performed well, while office and apartment results point to a mixed bag.

Most of the earnings reports from the lodging, resort and retail sectors – areas hardest hit by the pandemic-induced shutdowns – will be rolling out in the next seven to 10 days.

Another key metric  came out on Aug. 7 with the July U.S. employment report showing that 1.5 million people were added to the payrolls, bringing the national unemployment rate to 10.2 percent last month. That figure was down from 11.1 percent in June, 13.3 percent in May and 14.7 percent in April.

In February, the national unemployment rate was 3.5 percent pre-coronavirus.