COVID-19 Economic Update: Indicators Provide Clearer Picture as States Consider Re-opening

The past week has seen a major shift in the coronavirus response in that state governors consider how and when to reopen economies, said economists on an April 22 economic update webinar from Meyers Research.

Pennsylvania, which has had some of the strictest guidelines in the country regarding construction, is planning to allow construction to resume May 8, in accordance with safety guidance. Other states, such as Georgia, are pushing to re-open on a larger scale, which could act as case studies to see if re-opening can be done safely without an uptick in COVID-19 cases, says Ali Wolf, chief economist at Meyers Research. Despite talk of re-opening, questions remain about what the ultimate trajectory of this recession will look like.

Right now, data shows the economy suffered a sharp decline that Wolf predicts will stay down for a little bit. But, as America starts to slowly re-open, the economic growth curve will follow suit in a gradual increase. Wolf estimates it will take 16 to 20 months to recover.

Economic indicators also give a clearer picture as to the state of the housing market specifically.

The Housing Picture

Existing home sales declined 8.5 percent month over month and the new home pending sales index dropped 33 percent in the same time period. Purchase mortgage applications also dropped 31 percent week over week, according to the Mortgage Bankers Association. Although this is a big drop, it is relatively comparable to the week before, indicating the rate of drops are stabilizing, says Wolf.

Mortgage rates also remain low at 3.5 percent, which Wolf says can be a selling point for the housing market, but cautions consumers can be fragile and economic uncertainty remains high.

Tim Sullivan, senior managing principal at Meyers Research, says that sales, cancelation rates and even builder optimism varies by region. “The only thing consistent is inconsistency,” he says.

Most builders–93 percent–kept base prices flat week over week and 5 percent increased prices. A full 39 percent increased incentives, compared to 30 percent last week. Cancelations declined week over week from 31 percent to 28 percent.

About 70 percent of builders left staffing unchanged, although some have adjusted pay and introduced furloughs, but “not happening to the extent we saw in the Great Recession,” says Sullivan, concluding builders have an attitude that “we’re coming out at some point–in a matter of months, rather than years.”

Policy

The Small Business Administration loan programs, including PPP and EIDL, have been wildly popular and exhausted their initial funding in less than two weeks. Legislation to add more funds to the programs is going through Congress now and expected to pass so President Trump can sign it into law.

Read about the small business loan options available through the CARES Act.

Wolf shares the construction sector leads the way in terms of the volume of loan approvals. (Not dollar amount, she specifies.) Although there was initial fear about whether construction companies could qualify based on essential versus non-essential status, some builders have nonetheless been approved by demonstrating economic hardship due to COVID-19, she says. “Builders with existing relationships with banks are more likely to get the funding, and spec-only builders generally don’t count,” she says.

More individuals are receiving their stimulus checks, too, which Wolf describes more of a “maintenance” program than stimulus program in that the extra money helps to maintain a baseline, which is “fantastic because it helps with recovery on the other side,” she says.

Labor

The labor market continues to post dire numbers. The past five weeks have seen 26 million jobs lost. Although the weekly numbers remain in the millions, the rate is declining.

March 28 was the peak, with 6.8 million initial jobless claims filed. The number since has reduced, with 4.4 million initial jobless claims reported for the week of April 18. “This isn’t a surprise,” says Wolf, pointing to the initial forecast in March of unemployment reaching 20 percent.

Wolf also shares that although the number is high, it also encompasses furloughed employees, so the real unemployment rate is lower than it appears at first glance.