U.S. economic rebound expected for 2021, but tough times ahead for bars and restaurants

The COVID-19 global pandemic has been felt around the world. According to Catherine Mann, global economist at Citi Research, the rate of recovery is mixed. She spoke virtually at the 27th annual Business Forecast event hosted Friday (Jan. 29) by the University of Arkansas.

She said the global GDP forecast for 2021 is 5%, while inflation is pegged at 2.2% for this year and next. Mann said the recovery would be asynchronous with the U.S. expecting to get back to pre-COVID growth levels by the middle of 2021, and China, which believes they are already there. The two economies comprise about 50% of global growth. But the other half is expecting a more delayed recovery. She said Europe does not expect it to recover until 2022 fully, and Latin America predicts its recovery will be in 2023.

Mann said the mixed recovery would take a toll on trade for the next couple of years. She said trade was already challenged because of the Donald Trump administration’s tariffs in 2019 and then global supply chain disruptions from COVID-19 in 2020.

“Retail trade growth flatlined in 2019. It collapsed 20% in 2020, and there is no likely possibility it will recover anytime soon as 10% of trade is directly tied to tourism, which experienced almost a 100% collapse last year,” Mann said.

She expects inflation to spike to 2% in the second quarter of 2021, saying it’s already in the making and coming from deep troughs experienced in 2020 amid a significant pullback in spending. She said private investments remain muted because of stymied growth in 2020.

One caveat that could make for a brighter outlook will be if the COVID-19 vaccines eradicate the virus and its variants. She said that involves many moving parts, including effective vaccine distribution and consumers feeling confident enough to spend and travel again. A business would have to spend, and borders would have to reopen to get global travel and commerce flowing. If all of this could happen, the upside would be a 2% improvement of the growth estimate for 2021. Mann said it’s not likely, but possible.

HOUSING MARKET
Mark Palim, the deputy chief economist with Fannie Mae, spoke on the U.S. economy and housing during his virtual presentation at Friday’s event. He said 2020 was the shortest recession in history and the deepest concerning unemployment as the COVID-19 pandemic unfolded across the U.S. in early 2020. He said one year into the pandemic, with extensive fiscal stimulus along the way and more to come, the jobs losses are just now back to the previous deepest recession level.

“We have a long way to go on job recovery,” Palim said.

He said we won’t get there in 2021 and maybe not by 2022. Palim also spoke about risks to the recovery starting with the vaccine rollout and how quickly the pandemic could be put to rest. He said that despite the vaccines’ effectiveness, people have to get them and then feel safe enough to spend, travel and consume. He said it would be essential to see what businesses survived and how many workers must be retrained.

As bleak as the employment sector has been, a bright spot in the economy has been housing. Palim said the sector did have a V-shaped recovery, and home prices surged 20% in 2020. He expects prices will moderate in 2021 and 2022, but supply constraints remain a problem in new and existing single-family housing. He expects home sales to rise 4.8% this year while existing home sales increase by 3.7%. He said those numbers would taper in 2022 at 3.7% for new homes, while existing home sales are expected to fall 3.3%.

Palim said while the housing market remains strong, other segments such as small businesses and travel and leisure are still experiencing deep revenue losses. There will likely be more fallout before the crisis is over.

SMALL BUSINESS STRUGGLES
Mervin Jebaraj, director for the Center for Business & Economic Research at the University of Arkansas, echoed that sentiment during his virtual presentation. Jebaraj said Arkansas did not enter the pandemic with substantial job growth numbers, and the state lost 44,000 jobs throughout 2020. He said leisure and hospitality had the most significant loss at 16,000 jobs. He said it would take months and years for Arkansas to recover the jobs lost during the pandemic. He expects about half of the overall jobs lost will come back in the next six months, but the other half will likely take a few more years.

He said 25% of small businesses in the state have closed amid the pandemic, and small business revenue was down about 20% in 2020, despite the stimulus. Revenue in the hospitality sector fell 50% overall in 2020. He said bars saw a 30% decline in revenue, while liquor stores saw a 36% uptick in business as more consumers stayed at home to watch their favorite football teams play.

Full-service restaurants across the state saw revenues fall 10%, while limited restaurants reported a 4.5% decline in revenue this fall. He said one concern for restaurants and small businesses that have remained open during the pandemic is how they might manage back rents and other payment assistance they obtained from landlords and lenders.

“I fear after the pandemic passes, we could see a wave of businesses close when they have to try to repay their back rents or other loans they got to remain open during the health crisis. These are tropically low margin businesses, and even when back at full capacity, it may be hard for them to work out payment arrangements,” Jebaraj said.