Recession and Recovery

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Statistics tell us about the past, while markets look to the future. I have no doubt that the world will see negative growth in the second quarter and possibly the third quarter – which would make it officially a recession – but I also expect a strong recovery fueled by the amount of monetary and fiscal stimulus that has already been provided by some countries and will be by others.

Perhaps the best coordinated response so far has come from the UK where monetary, fiscal and regulatory measures were announced together on Wednesday. The US has been slow to acknowledge the seriousness of COVID-19 and the fiscal measures announced so far are, rightly, largely aimed at helping those most affected by the economic impact of the shutdown of so much of the country. I have to assume that a larger fiscal stimulus will be announced at some point.

As to the future I quote from a recent Wall Street Journal editorial:

“For all the foreboding about the novel coronavirus—foreboding that is justified—it is heartening to see the American people responding in ways reminiscent of the frontier spirit. Most people are doing what they have to do to survive a clear and immediate threat to their lives and communities.”

“The new watchword is “social distancing.”  The speed with which the American people and their institutions are executing that sound strategy is breathtaking.”

“Health emergencies in the U.S. mainly and appropriately remain the responsibility of state and local officials.”

“The House package includes free testing for everyone who needs it, and two weeks of paid sick leave to allow people with the virus to stay home from work and avoid infecting co-workers. It also includes enhanced jobless benefits, increased food aid for children, senior citizens and food banks, and higher funding for Medicaid benefits.”

“The pandemic is still in its early stages in the U.S., and the fight will be a long haul. Social distancing by individuals and businesses may have to persist for weeks or even months. The good news on Friday is that the federal government and private economy seem at last to be manning the health barricades.”

China’s example

Perhaps lost in the drama of this week is the news that China seems to be on the path to returning to normal. On Friday Apple reopened all its 42 stores which had been closed since early February.

“It feels to me that China is getting the coronavirus under control,” CEO Tim Cook said in an interview two weeks ago. “I mean you look at the numbers, they’re coming down day by day by day. And so I’m very optimistic there.” Cook went on to point out that Apple’s suppliers were reopening factories.

Starbucks closed about half of its 4,300 stores on January 29. Those closures, combined with already planned closures for Chinese New Year holiday, resulted in some 80% of its stores shuttered in early February. As of early March more than 90% of its stores were open, albeit most were operating on a reduced schedule. By month’s end, assuming no unforeseen reoccurrences of the disease, the company expects 95% of stores in China to be open.

On March 9, Jing Daily reported that China may soon have the disease under control thanks to its proactive public health measures. And some analysts predict government-imposed quarantine measures may begin to lift as early as the end of March.

With the first quarter of 2020 in the tank, JP Morgan research analysts are hopeful for an economic recovery in the second quarter. According to China Daily, Jing Ulrich, the bank’s vice chairman of global banking and Asia-Pacific, predicts that the Chinese economy will grow 15% quarter-on-quarter from April to June, after contracting by 3.9% during the first three months of 2020, compared to the previous year.

Comment

The slow response to the seriousness of COVID-19 may delay the recovery in the US but that recovery should still take place later this year. The timing depends upon the success of the measures to contain the spread of the virus and the scale of the fiscal stimulus which is still to be announced.

As for the housing market, I have for some years used the simple concept of Supply and Demand to describe conditions. For some years Demand has far out-stripped Supply. It seems quite possible that for the next few months Demand may be reduced as buyers adopt a wait and see attitude, while Supply may increase as those sellers who had been thinking of selling decide to do so.

If this works out, we may later in the year see a more balanced housing market between buyers and sellers.

I will end this piece by repeating an earlier quote from the WSJ:L

“For all the foreboding about the novel coronavirus—foreboding that is justified—it is heartening to see the American people responding in ways reminiscent of the frontier spirit. Most people are doing what they have to do to survive a clear and immediate threat to their lives and communities.”

And that spirit will also determine that the recovery will come.

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Andrew Oliver

REALTOR®

Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
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