New York (CNN Business) – The Covid-19 recession in the United States has been painful, but it appears it could be short-lived.
The official arbitrator, the National Bureau of Economic Research (NBER), has not said this recession is over. However, it appears that the economy is back in recovery mode, with optimistic signs in employment, housing and stocks.
Some experts believe that this recession is a reflection of the one in 1918, which was also triggered by a pandemic – the global flu outbreak. That recession lasted only 7 months and was the second shortest on record.
Could the COVID recession follow a similar path? We will have to wait for the opinion of the NBER, the organization that declares the beginning and the end of economic cycles, which usually take several months to declare the end of a recession.
There are undoubtedly sectors of the economy that are still far from their pre-February 2020 levels, such as small businesses, retail, and restaurants.
But many areas are improving. GDP is growing again, with a rebound in the last three quarters after declines in the first half of last year. The labor market is also on the mend, as workers in the worst-hit service sectors return to their jobs. Income has recovered along with the stock market. The housing market continues to be a success.
And most of the big cities have practically returned to normalcy.
“We are no longer in a recession. Things are incredibly strong and it’s almost a euphoria, ”said Ivan Kaufman, president and CEO of Arbor Realty Trust (ABR), a real estate company that makes loans to apartment owners and commercial real estate companies.
NPL rates are relatively low for clients of Kaufman’s company, he said, adding that rents, which took a brief hit last year, are starting to rise again. The demand for rentals is also increasing.
The disappearance of America’s urban centers may have been exaggerated.
“The problem with the covid was that nobody was going to the cities,” Kaufman said. “That phenomenon created some vacancies. But that is over”.
From strong … to quite strong
Urban real estate is not the only sector of the economy to make a comeback. Money management company ClearBridge Investments has a recession risk dashboard that looks at a dozen economic indicators, including retail sales, housing, commodity prices, the labor market, and truck shipments.
ClearBridge said earlier this month that most of these measures bottomed out in May 2020 and that all 12 indicators are now showing signs of recovery.
Analysts at ClearBridge noted in a report that, with this in mind, they believe the recession could have ended a year ago, just four months after it started. They even used a joke from “Meet the Parents” to describe the economy, saying that it is “strong … to quite strong.”
Meanwhile, investors aren’t acting like this is still a recession. The biggest concern now is whether the economy will heat up too quickly, forcing the Federal Reserve to cut bond purchases and raise rates earlier than expected.
Every recession is different and this one is unusual. But the market is clearly out of the pandemic, “said Matt Peron, research director at Janus Henderson Investors. Investors are focused on inflation. It is risk number one, two and three.
Fear of the double fall?
Beyond concerns that the Fed will scrap proverbial profits and cut stimulus too soon, Peron said, investors also fear the central bank will not act quickly enough to stem inflationary pressures before they spiral out of control.
“The Fed has to walk a tightrope,” Peron said, adding that a central bank mistake could lead to a double dip recession, when the economy contracts again rapidly after a recovery.
That’s what happened after the historically brief recession of 1980, which at just six months is the shortest on record.
A series of steep rate hikes by the Federal Reserve helped spark another recession that lasted from July 1981 to November 1982.
But many Wall Street pundits and economists believe the Fed won’t be forced to raise rates anytime soon or that inflation will run rampant.
“A period of persistent inflation fueled by rising wages fueling rising prices could lead to tighter financial conditions and jeopardize this young expansion,” Nuveen strategists said in a report Monday. “But we remain on the side that expects inflation to moderate from now on.”
Strategists believe that the job market and supply shortages caused by the pandemic should ease soon. That will reduce pressure on wage growth, a key component of inflation.
They also believe that companies have made enough investments to boost productivity, which should mean they won’t have to pass the costs of higher raw material prices onto consumers.
“We have probably already seen the highest monthly inflation readings of 2021,” Nuveen strategists said.
If that’s the case, the economy could continue to expand for the foreseeable future. The only question now is when the NBER will come out to officially declare the end of the 2020 recession.