March 2021 - Research Write-Up
An overall optimistic economic outlook from PNC was the latest out of the UC Real Estate Roundtable program. Stuart G. Hoffman, a senior VP and economic advisor with PNC, gave a wide-ranging summary of where the U.S. economy stands today, which was colored by Greg Valliere, Chief U.S. Policy Strategist with AGF Investments. Not only was virtually every important aspect of the U.S. economy touched on by the two panelists, but a brief look at Cincinnati’s economic position added a helpful local anecdote. As this write-up will illustrate, the sharp recovery thus far is incredible and promising, but struggling sectors still remain, a new administration will begin its policy changes with broad economic implications, and debates have already begun about the risk of a potentially overheated economic system.
First, the bright side. The U.S. economy has continued to rebound fairly well all things considered. Hoffman and PNC project GDP growth to hover around 3-4% in each quarter of 2021. Q1 will likely fall just short of this expectation due to the winter storms affecting a majority of the country and the recent energy crisis in Texas. But year-over-year GDP growth is expected to be strong regardless of who you talk to. What’s more, the U.S. has more fiscal stimulus on the way, manufacturing activity has been extremely resilient throughout this rebound, and employment for jobs with remote work ability has almost reached normal levels. This outlook is not without its risks and weaknesses, however. The non-manufacturing sector, including hospitality, transportation, entertainment, and other service categories, is still lagging from a production and employment standpoint. Unemployment claims remain stubbornly high. From Hoffman and Valliere’s perspective, however, one of the most pressing concerns is the potential for too much stimulus into the economy and how that might weigh on the mounting national debt and subsequent inflation.
The panelists argued that, despite the widespread hardship caused by this pandemic and an unprecedented shutdown of economic activity, Americans and their economy are in fact much stronger now than just a few months ago. With $1.9 trillion in additional stimulus on its way to approval, Hoffman and Valliere cautioned that there is a risk of overdoing it, and favored a more targeted approach to economic aid. For unemployment benefit funding, additional resources for vaccine supply, and continuing support for healthcare, money is very much needed. Where money might not be necessary at this point in time are school systems, many of which are still remote and are not in dire need of money to fund normal operations, as well as state and local economies, which have, as a whole, weathered the storm. The politics of where money should go quickly become apparent, but the panelists emphasized that a broad stimulus package might actually do more harm than good. It will be a balancing act to push economic recovery forward without injecting too much unnecessary stimulus.
Another major topic of conversation was the new Biden administration and its regulation agenda in particular. First, on antitrust issues, Valliere emphasized stronger regulations and more legislation during Biden’s term, making future acquisitions much more difficult. On trade, the Biden administration is fundamentally anti-tariff, and Valliere expects tariffs in place to be rolled back fairly quickly, although not immediately with China. Lastly on fossil fuels, rejoining the Paris Agreement and rejecting the Keystone pipeline point to a renewable energy focus for our new president, but may impose higher costs and restrictions on firms.
Finally, Hoffman summarized the economic path Cincinnati has followed since the beginning of this pandemic. 176,000 jobs were lost in the area, or about fifteen percent of the workforce. However, Cincinnati has shown better improvement than many cities across the U.S. Since the lowest points of the economic backsliding, 65% of those lost jobs have been recovered. What’s more, that recovery has spanned both the manufacturing and service sectors, highlighting the well-diversified nature of Cincinnati’s economy.
While Cincinnati may be slightly farther ahead on the upward trend in recovery, the entirety of the U.S. economy continues to bounce back at a remarkable pace considering the circumstances. The lingering question will be whether or not the pendulum swings too far in the other direction, and rising debt and inflation become the next wave of issues our economy will have to face.