Market Trends December 2020
What Shape Recovery?
Goldman Sachs predicts that economic growth will rebound more strongly than expected during the second quarter of 2021 despite projected GDP losses in the fourth quarter of 2020 and the first quarter of 2021 caused by a resurgence of CV19. They expect the current weakness to give way to stronger growth when European lockdowns end, and a vaccine becomes widely available. Goldman is predicting a GDP loss of 3.9% globally in 2020 and a bump of 6% in 2021. That would indicate a V-shaped recovery, which means the economy bounces back to baseline or better with few hiccups. Their analysis projects that even if Republicans hold the Senate, they expect lawmakers will enact a $1 trillion stimulus package, potentially even before Biden’s inauguration January 20. They believe the stimulus would have a small positive impact on US growth in 2021.
Vaccines Bring Hope for the New Year
At the end of November three CV19 vaccines, from Pfizer, Moderna and AstraZeneca, were in various stages of final review and approval, with the FDA expected to approve Pfizer’s vaccine, reported to be 95% effective, by mid-December, with the first doses shipping out to pre-identified hospitals and distribution points less than 24 hours later. Two other vaccines are also reporting high efficacy rates, and the current administration has begun working with President-elect Joe Biden’s transition team to assure a smooth handoff that will not slow down distribution.
2021 Housing and Construction Trends
Total US construction starts will increase 4% in 2021, after dropping an estimated 14% in 2020, according to Dodge Data & Analytics. They expect the dollar value of starts for residential buildings will increase 5% in 2021, nonresidential buildings will gain 3% and nonbuilding construction will rise 7%. However, only the residential sector will exceed its 2019 level of starts. The dollar value of single-family construction will rise 7% and the number of units will rise 6%. Multifamily dollar value and the number of new units will both drop. Warehouse construction will be the clear winner in commercial building starts, which are expected to increase 5% in 2021 as ecommerce giants continue to build out their infrastructure.
Historically low mortgage rates and the ongoing shift to the suburbs and rural areas have spurred demand and sent new home sales up nearly 17% this year. Availability issues for lots, labor and building materials is depressing some activity. NAHB notes that supply-side constraints will be a key concern throughout 2021.
Much of the increase in single-family home starts has been in the South and West, where markets have held up better during the pandemic. More than 80% of all single-family homes built over the past year have been in the South and West, which also means construction can continue over the winter. The South and non-coastal regions of the West are seeing a huge influx of residents from the large metro areas in the Northeast and West Coast, according to data analysis by Wells Fargo.
Data from the postal service on address changes and LinkedIn shows an accelerating outflow from New York, Los Angeles, San Francisco, Seattle and Portland. Phoenix, Salt Lake City, Dallas, Austin, Charlotte, Tampa, Nashville and Jacksonville have been among the fastest growing markets.
Holiday Forecasts and Strategies
Analysts’ estimates of holiday spending vary widely. Gallup Poll estimates that spending on gifts will drop 14.5% this season, with 28% of Americans saying they will spend less on presents than in 2019. Wells Fargo predicts that holiday sales will increase 9%, which would be the largest year-over-year gain on record. The National Retail Federation forecast that holiday sales during November and December will increase between 3.6% and 5.2% over 2019 to a total between $755.3 billion and $766.7 billion. The numbers, which exclude automobile dealers, gasoline stations and restaurants, compare with a 4% increase last year and an average holiday sales increase of 3.5% over the past five years.
However, where people spend their holiday dollars is expected to undergo a pandemic shift, with surveys showing that 80% of consumers expect to do at least some of their holiday shopping online and overall, less than half of all holiday shopping will be done in physical stores. NRF expects that online and other non-store sales, which are included in the total, will increase between 20% and 30% to between $202.5 billion and $218.4 billion, up from $168.7 billion last year.
Retailers are making changes to keep customers safe in stores and encourage other methods of shopping, including buy online, pickup in store (BOPUS), curbside pickup, parcel lockers and buy online and ship to customers’ homes or businesses. Some stores are allowing customers to avoid crowds by making online or in-app reservations to shop in a store. Some malls have introduced new “foot pedals” that allow mall doors to be opened without touching them. Hand sanitizer stations abound, along with signage about social distancing. Armies of employees roam stores constantly cleaning. Target is offering customers the opportunity to take their cart full of merchandise to any employee with the correct device, have their items scanned and leave without having to go through the checkout at all.
Mask Mandates Increase Consumer Spending
Mask mandates are good for the economy, according to a new study from Washington University. Consumer spending increased an average of 5% in communities where masks were mandated, with the greatest impact felt by so-called nonessential businesses, such as retail, restaurants and bars, that were heavily affected by the pandemic. They released a statement that mask mandates and social distancing should be considered as pro-business measures. When people feel safer to go out and spend money, they spend more. In addition, if the pandemic is kept at bay, the economy will recover more quickly. President-elect Joe Biden has repeatedly emphasized the importance of a national policy on wearing masks.
How Retailers Deliver So Fast
Dotting areas with “last mile” warehouses helps retailers get merchandise to customers homes in a matter of hours, not days. Amazon has more than 150 such warehouses and other big retailers are following suit as everyone attempts to speed up the last mile journey from retailer to customer. Areas with higher population density can support more last mile warehouses. Amazon’s last-mile warehouses adhere to precise schedules, with packages arriving via tractor-trailer trucks and being sorted by delivery routes between 10 p.m. and 7 a.m. Packages are loaded into delivery vans every 20 to 30 minutes, starting after 9 a.m., and the last driver begins their route by 1 p.m. Empty vans return to the parking lot between 7 and 9 p.m. Once vans have departed, independent contractors who use their own vehicles and are paid between $22 and $25 an hour arrive to pick up parcels scheduled for same-day delivery. The Home Depot is opening about 150 last-mile warehouses that will also handle bulky, large items, including appliances.
Pandemic Panic Buying Returns
CV19 cases soaring to new heights across much of the US resulted in another wave of panic buying and hoarding of toilet paper, paper products, sanitizer, cleaning wipes and other cleaning supplies. Retailers say they are more prepared and better able to respond quickly than they were in the early stages of the pandemic, and many have already placed quantity limits on certain items.
How Brands Connect
Apple has been the most “intimate” brand during the pandemic, according to MBLM’s Brand Intimacy COVID Study, which ranked brands based on emotional connections during the pandemic. Amazon, Google and Walmart ranked second, third and fourth in the study. The top brands that people are using more during the pandemic are Zoom, Purell and Netflix. Purell is the number one brand people are willing to pay more for, with consumers willing to pay 20% more for Purell brand products. Access and connection brands, including Verizon and AT&T, also got strong ratings. Interestingly, during the pandemic men are forming deeper attachments to brands than women are. Media and entertainment, automotive and retail are the top three industries for brand intimacy. MBLM conducted a quantitative survey of 3,000 consumers in the US detailing their experiences across 10 industries and 100 brands in order to create the survey.
World’s Biggest Free Trade Deal
Fifteen Asia Pacific countries signed a free trade deal that was first proposed in 2012. The deal is seen as a huge coup for China. The Regional Comprehensive Economic Partnership (RCEP) includes 10 Southeast Asian economies along with China, Japan, South Korea, New Zealand and Australia. The agreement has reportedly been in negotiations for eight years.
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