Economic trends to continue to watch in 2021
As vaccination rates go up, COVID cases decline and more local governments lift restrictions, consumers and business owners alike are looking forward to the future. As the nation begins to reopen, trends are beginning to emerge that show signs of an accelerating, but potentially uneven recovery.
Unemployment and job trends
Prior to the pandemic, the Bureau of Labor Statistics (BLS) predicted that total employment was going to increase by 6 million jobs between 2019 and 2029.1 After record job losses last year, the pandemic has introduced significant uncertainty when it comes to the job market.
At its peak in April 2020, the unemployment rate hit an unprecedented 14.8%—the highest unemployment rate since data collection began in 1948. However, similar to the overall economic outlook, the job market has seen a steady recovery over the past year. By April 2020, the unemployment rate had dropped to 6.1%, a sharp drop from the highs during 2020. The United States has added more than 14 million jobs since May 2020, largely due to local and state economies reopening after the shutdowns in March and April of 2020.
Still, unemployment remains higher than pre-pandemic levels. Some sources, like the Congressional Budget Office, believe the unemployment rate won’t return to pre-pandemic levels until 2030 or beyond.2 Other sources, like the Federal Open Market Committee (FOMC), are more optimistic, estimating that the unemployment rate will be 4.5% for the year 2021, declining gradually in the years that follow (i.e., down to 3.9% in 2022 and 3.5% in 2023).3
Personal auto trends
As the pandemic kept consumers away from showrooms and significantly disrupted production, the auto industry saw one of its weakest years in nearly a decade in 2020. Automakers sold an estimated 14.5 million cars and light trucks in 2020 — a 15% drop from 2019 numbers.
The industry is on the rebound, as the pace of light vehicle sales has climbed to just below pre-pandemic levels. The annualized rate of light vehicle sales climbed to a 18.5 million pace in April 2021 – the highest monthly pace since 2005. In general, auto sales are expected to increase over the next year as labor market conditions improve.
As it relates to personal auto claims, frequency is down, likely due to the fact that many individuals continue to work from home in 2021. According to the Department of Transportation (DOT), traffic volume across all roads and streets dropped 13.2% (about 430 billion vehicle miles) in 2020 compared 2019. Vehicle miles traveled are climbing in 2021, however, as more people return to normal consumer, work and travel trends.
In general, the housing market has performed well, and the 2020 market was largely characterized by a surge in demand. Despite the pandemic, home sales last year surged to the highest level since 2006, reflective of strong homebuyer response to record low mortgage rates and the recovery of the job market. Total home sales reached 6.46 million in 2020 and are expected to climb to 6.95 million in 2021.
Notably, there was a shift in the market, and many buyers were purchasing houses away from cities and in more suburban and exurban areas. This is potentially a result of the pandemic, with homebuyers seeking property in less densely populated areas while remote working options have become more prevalent.
While housing demand is high, inventory remains low, thus accelerating housing price growth. According to the National Association of Relators, the median price of an existing home sold in April 2021 was an all-time high at $341,600 — a 19.1% increase compared with April 2020.
Home sales should rise further into 2021, while home construction should ramp up to meet homebuyer needs for single-family housing. Continued low mortgage rates should lift demand, even as the inventory of homes for sale remains tight. Home price gains could be above average for several years with low supply conditions.
Commercial property trends
While home sales saw upward trends in 2020, commercial real estate was significantly disrupted as a result of the pandemic. Initial data indicates that commercial real estate investment fell nearly 30% globally in the first six months of 2020 compared to the same period in 2019.4 According to Fitch Ratings, more than 5,000 borrowers asked to explore forbearance or other relief in April 2020 — representing 17% of the $583.8 billion in commercial, mortgage-backed securities.5
Much of this negative impact can be attributed to how COVID-19 affected organizations during the pandemic in differing ways. Local and state government restrictions forced nonessential, consumer-facing businesses in the service sector to close or to significantly cut back hours. As a result, many businesses were unable to pay their rent.
Other businesses that rent office space had to uproot their operations completely, with many establishing a fully remote workforce on short notice. Some of these businesses have continued to allow their employees to work from home into 2021. In one Gartner survey, 80% of respondents planned to allow employees to work remotely at least part of the time after the pandemic. Another 47% of respondents said they’d allow employees to work from home full time.6
Now that businesses have operated for over a year using remote work, many employees and prospective employees view telecommunicating as a significant job perk. It’s possible more companies will turn away from renting traditional office space in the future. How this will impact the need for office space has yet to be seen, but a long-term decline in commercial real estate demand is possible.
These trends offer a glimpse of the potential economic challenges and opportunities facing businesses in the remainder of 2021. And while there’s inevitably a sense of uncertainty that comes with anticipating economic trends, organizations that take the time to prepare will be better equipped to navigate the market. To ensure your business is doing all it can, it’s critical to work with industry experts who have the necessary knowledge and experience.