Market Trends August 2020
Economic Projections for 2020
Goldman Sachs cut their previous estimate for GDP for this year, and now sees the economy shrinking 4.6% in 2020 rather than the 4.2% contraction previously estimated. A new round of restrictions and continued stay-home orders will continue to be a drag on the economy and limit the strength of the rebound. The recent resurgence in CV19 cases over much of the country has kept Americans from traveling and returning to restaurants and stores. In addition, many activities that typically pump money into the economy in the fourth quarter are being curtailed, from professional sports and entertainment to Black Friday activities, which are likely to primarily occur online this year. However, Goldman expects demand to be pushed into next year, and has increased their estimate for first quarter growth to 8% from 6.5%. The Congressional Budget Office (CBO) sees GDP shrinking 5.9% this year, and the jobless rate remaining in double-digits, although they now expect unemployment to end the year at 10.5%, down from their previous forecast of 11.5%. The CBO sees a long, slow recovery after the initial bounceback, with the economy growing about 2% a year and unemployment averaging 6.1% through 2030.
National Mask Mandate Would Save Lives and Money
Wearing a mask could save the domestic economy up to 5% of GDP, according to an analysis by Goldman Sachs. The team of economists makes the case that a national face-mask mandate could partially substitute for renewed lockdowns as infections flare in a number of southern and western states.
The renewed lockdowns are estimated to subtract 5% from GDP. In addition, medical experts state that wide-scale wearing of masks would also save thousands of lives and help halt the spread of the virus. In mid-July Walmart stepped up and announced masks would be required in all Walmart and Sam’s Club stores regardless of whether or not masks were required by the local government. Many more retailers quickly followed suit, with The Home Depot and Lowe’s joining Menards mandating masks along with grocers Kroger and Publix and a host of other retailers.
During July the importance of masking up became more widely accepted as myriad national health officials and epidemiologists strongly urged people to comply, Congress instituted a mandate for both houses and President Trump endorsed mask wearing. An ABC poll at the end of the month showed that 9 out of ten Americans polled had worn a mask when going out in public over the previous week. According to a poll by Harvard CAPS/Harris, released by The Hill, 79% of people said they supported a national face mask mandate. Seven in 10 respondents also said they agreed with the idea of fines for people who do not wear masks. By the end of July, only two states, Iowa and South Dakota, had no type of mask mandate in place anywhere in the state.
People Still Want to Buy Homes
The share of Americans who are considering the purchase of a home in the next 12 months was 11% in the second quarter of 2020, essentially flat when compared to the same quarter in 2019 (12%), according to the National Association of Home Builders’ (NAHB) latest Housing Trends Report. That’s actually good news, as it indicates that the pandemic has not substantively affected the overall number of Americans who want to buy a home. The share of prospective first-time buyers was about the same in the second quarter of 2020 (59%) as it was a year earlier (58%). The data for this report was collected in the second half of June, when the labor market was showing signs of recovery, before CV19 cases began resurging in much of the country.
Millennials were most likely to want to buy a home (19%), even slightly higher than a year earlier (17%). Boomers, on the other hand, were the least likely, with the share planning a home purchase falling from 7% to 5%. Across regions, the share of respondents who are prospective home buyers was unchanged in the Northeast (10%) and South (12%), essentially flat in the West (13%), and just slightly lower in the Midwest (down to 9% from 11%). Other research shows that the percentage of single women buying a home has risen from 15% to 20% of buyers, and that single women are twice as likely to buy a home as are single men.
According to Wells Fargo, the broad-based strength in new home sales reflects a shift in consumer attitudes toward homeownership. With people spending more time at home during the pandemic, many households are looking for more space to accommodate remote workspaces and the presence of more people in the home for more hours each day. New homes provide homebuyers better options, as new homes are more apt to be internet-friendly and have more open space. The trend out of cities and urban spaces and into suburbia and rural America is also continuing as people search for places where it’s easier to social distance from your neighbors.
Inventories of existing homes remain persistently low, making new homes a more viable option. The strength in home sales likely has considerable room to run, according to housing analysts. Mortgage rates recently hit new lows and applications for mortgages to purchase a home are nearly 20% above their year ago level. The nation’s demographics also increasingly favor homeownership. The number of millennials turning 40 will rise every year through the end of this decade.
As strong as the recent surge in new home sales has been, it does not show the full picture. New home sales largely reflect sales of the big national and larger regional homebuilders but exclude most contractor-built homes. That category of homes has become larger as more home buyers have shown interest in reviving neighborhoods. Teardowns and rebuilds have become commonplace. Infill development has also increased, with townhomes making a big comeback among buyers grappling with affordability challenges.
NAHB looks for new home sales to trend higher this year, providing a lift to producers of building materials, furniture and home furnishings, as well as all the service providers tied to housing.
Remodeling Confidence and Trends
The Remodeling Market Index (RMI) posted a reading of 73 in the second quarter, according to the NAHB. This is the second quarter using the new RMI, which was recently redesigned in order to make it easier for respondents and to improve its ability to interpret and track industry trends. The new series is not seasonally adjusted; therefore, index readings cannot be compared quarter to quarter.
The new RMI survey asks remodelers to rate five components of the remodeling market as “good,” “fair” or “poor.” Each question is measured on a scale from 0 to 100, where an index number above 50 indicates that a higher share view conditions as good than view them as poor.
The Current Conditions Index is an average of three of these components: the current market for large remodeling projects, moderately-sized projects and small projects. The Future Indicators Index is an average of the other two components: the current rate at which leads and inquiries are coming in and the current backlog of remodeling projects. The overall RMI is calculated by averaging the Current Conditions Index and the Future Indicator Index. Any number over 50 indicates that more remodelers view remodeling market conditions as good than view them as poor.
In the second quarter, all components and subcomponents of the RMI were well above 50. The Current Conditions Index averaged 77, with large remodeling projects ($50,000 or more) yielding a reading of 70, moderately-sized remodeling projects (at least $20,000 but less than $50,000) at 78 and small remodeling projects (under $20,000) with a reading of 83. The Future Indicators Index averaged 70, with the rate at which leads and inquiries are coming in at 72 and the backlog of remodeling jobs at 67.
In order to track quarterly trends, remodelers are asked to compare market conditions to three months earlier, using a ‘better,’ ‘about the same,’ ‘worse’ scale. This index posted a reading of 66, indicating that remodelers believe that market conditions have improved substantially since the first quarter. According to NAHB, many remodelers are busier than they were prior to the pandemic, with decks, patios, porches and kitchen and bathroom jobs popular. In addition, other sources have reported that creating or remodeling a home office is becoming increasingly popular.
Confidence in Distribution and Warehouse Markets Strong
While many commercial building sectors are struggling, Distribution and Warehouse construction remains an area of confidence, according to the ENR’s latest Construction Industry Confidence Survey. Warehouses, fulfillment centers, data centers and public health facilities are all areas of strength, and respondents noted that manufacturing may grow as the trend toward locally sourced materials is encouraging companies to move plants back to the US. A strong market for office and retail renovation may develop as both companies and builders adjust to the new realities of lower density and higher standards of sanitation.
Most Valuable Brands
Amazon retained its position as the world’s most valuable brand, according to the most recent annual survey done by Kantar. According to the BrandZ Global Top 100 Most Valuable Brands 2020 rankings, Amazon’s value grew 32% this year to $415.9 billion. In second position was Apple, whose brand value grew 14% to $352.2 billion. Microsoft was ranked third and Google took the fourth spot. The ranking is based on consumer insights from over 3.8 million consumers around the world, covering more than 17,500 different brands in 51 markets. Kantar noted that the pandemic has accelerated certain trends that were already evident, such as the trend to online shopping.
The Office of the Future
The workplace has gone through many transformations over the years, from crammed open offices to the cubicle era to an open office floor plan that was designed to create sharing and interaction, but in fact resulted in lower job satisfaction and productivity. The pandemic has assured that the office of tomorrow will change profoundly, with many changes underway now as companies try to assure that employees who want to return to work are safe. Telecommuting and remote working has proved to be far more productive than anyone anticipated, and more and more companies are questioning how much expensive real estate they really need. Some giants such as Twitter and sister-company Square, as well as Shopify, have already told employees they can work from home indefinitely. Facebook says that up to 50% of employees may work from home permanently in the future. And Google recently announced employees can work from home until July 2021. The general consensus is that while the office will not go away, it will profoundly change as employers reconfigure floorplans to allow for greater social distancing, which also gives employees something that has long been in short supply: privacy. The need for touch-free, safe environments may give rise to robotic cleaning crews and powerful central air cleaners and redesigns for everything from elevators to restrooms. Other options being considered include staggered shifts so fewer people are in the office at any one time with in-depth cleaning in between.
GSA Turns to Amazon and Overstock
The General Services Administration (GSA), the agency that manages the government workforce, announced contracts with Amazon, Overstock and Thermo Fisher Scientific under a three-year pilot program that will allow authorized personnel to make micro-purchases of items costing less than $10,000 through the online marketplaces. Amazon says the new system will be efficient and cost-effective for the government and save money for taxpayers.
Retailers Continue to Adjust to the New Normal
Retailers are looking at a variety of tactics to adjust to the realities of doing business during a pandemic that shows few signs of receding any time soon. Because most retail employees are on the front lines and don’t have the option of working from home, many retailers are strengthening how they are rewarding employees and protecting employees and customers. Target recently raised their minimum wage up to $15 per hour; something they had pledged to do back in September 2017, when they raised the minimum wage to $11 an hour. Both Lowe’s and Home Depot have awarded both full-time and part time associates bonuses. Walmart announced they will not be open Thanksgiving Day, and instead are choosing to forego the traditional sales and give employees the day off to spend with their families. Target quickly followed suit. Target is also giving frontline store workers and hourly distribution center works a bonus and offering virtual doctor visits and additional sick leave benefits through the end of the year.
Ecommerce Will Grow 18%
Online sales growth is now projected to grow an upwardly revised 18% this year, according to Emarketer. They also forecast that total retail sales will drop 10.5% this year, with brick-and-mortar sales falling 14%. Both the number of digital customers and average spending have been climbing, with digital sales to those 65 and older growing 12.2%. Online sales have been driven by a surge in curbside pickup. Emarketer now expects US curbside pickup sales to grow to $58.52 billion, up 60.4% from its initial forecast of 38.6% growth.
Retailers Team Up to Replace Plastic Shopping Bags
Walmart, Target, CVS and other retail giants are on a mission to find a replacement for the single-use plastic shopping bag. The group’s goal is to identify, pilot and implement innovative alternative designs for something to replace the single-use bag that still deliver the convenience consumers love but have much less impact on the environment. An estimated 100 billion single-use plastic bags are made in the US each year, and just a fraction of those are recycled. Many cities had taken measures to reduce and discourage use, but those efforts were largely reversed by the pandemic. Overnight, many retailers banned the use of reusable shopping bags, and many also took away recycling bins. Reportedly plastic bag use has skyrocketed.
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