March and April saw a major slowdown in terms of consumer spending, especially in sectors such as hospitality, food and beverage, and entertainment/recreation. Numbers in these industries were down as much as fifty percent or more. Additionally, clothing and retail sales were down a staggering 85% overall in light of the circumstances. Certainly, these numbers plunged rather rapidly. Many are expecting the bounce back to be a much slower process. Some predictions as far as consumer spending in the second half of 2020:
- The unemployment numbers will keep consumer spending lower than it otherwise would be during the summer months.
- Fear of public places will also likely keep consumer spending low in the next couple of months. Infrastructure makeovers will cost a great deal for some facilities, not to mention they are now serving fewer customers.
- Trust is going to be an issue in the second half of the year. If consumers do not trust businesses as well as the government, spending overall will be significantly less.
- Experts are predicting that spending on things such as food and entertainment will continue to be low, while people switch to spending on things that can be done more safely.
- Inequality as far as household incomes are becoming more evident as things start to reopen. Lower-income households will continue to struggle, probably more so now. And so, consumer spending in that respect will be an issue.
Early this year the housing market looked quite strong until that is, the events of March and April brought the real estate to a virtual standstill. Between February and April, housing starts fell by more than forty percent. That said, May saw an increase in new home sales, and sales were up nearly 17% overall. Existing home sales however have fallen within the past couple of months. The good news is that in light of technology available, the real estate market was able to keep pushing forward even during the crisis. Some predictions for the housing market in terms of the next few months:
- Experts see prices falling overall in 2021—this could be in light of unemployment numbers.
- Later this year and into next, many see the demand for housing dropping. Even with historically low mortgage rates, the labor market issues will impact people’s ability to buy.
- Housing is expected to recover but most agree that this will only happen in tandem with job recovery.
As with everything business investment was severely interrupted in the first part of 2020. The closing down of the economy meant that businesses essentially stopped spending. As things reopen, levels of business investment are probably going to be much lower than they were this time last year. Many businesses are facing a great deal of uncertainty. With consumers spending less, there are numerous questions about operations and costs across the board. And again, given unemployment numbers, businesses cannot be certain about any sort of financial system or subsequent investments.
- Forecasts predict that business spending will be muted until sometime in mid to late 2021.
- Government policies will force businesses to spend money to stay in compliance with current regulations. This will slow business investments.
- Businesses will look to spend in areas that will help shore up their supply chain; this could include diversification of that supply chain as well as adding to their inventory.
The US government has been consumed with managing economic recovery during this difficult time. They’ve thus far passed over three trillion across four different spending bills to stimulate a flagging financial picture. Emergency relief however was direly needed. One of the cornerstones of the emergency relief was enhancing unemployment benefits to encourage people not to work and consequently stay home. So what happens once the economy is back in full swing…
- Many are optimistic that upon major reopenings there will be no more stimulus money needed as people are rehired and operations go back to “normal.”
- If the economy however does remain stagnant once businesses are back open, then yes, we could be looking at a situation in which some other form of stimulus package may be required.
- Should the government have to consider another stimulus bill, experts suggest that ideally, it should focus on federal spending on GDP—as this will be the most effective boost for the economy.
- Given all of the spending that has been done within the past few months, the federal debt has significantly ballooned. The Deloitte baseline has the federal deficit at over 1.5 trillion through the next five years. This is larger than even during the Great Recession.
- Can the government continue to borrow at this rate? Most agree that for now, it can as long as investors stay confident. Fortunately, investors overall don’t seem to be showing a lack of confidence as regards the US debt. And actually, the incredibly low-interest rates on this debt are encouraging to investors.
- Over the long term though the US could face major issues if the government doesn’t find a way to cut down on borrowing.
- State governments are also facing some problems in the second half of 2020. With reduced income tax collections and a sharp decrease in retail spending, many states are having to slash their budgets. These spending cuts could make a recession much worse.
First Union Lending is working with the nation’s small businesses to help them get back on track. Our loan programs can provide you with much-needed funds to weather this storm. We are invested in seeing our clients survive and ultimately thrive. If you need additional working capital during these challenging times, we can most definitely help. Offering short term loans and lines of credit, among other such programs, we can get you to cash quickly—sometimes within just two days. Call today and let’s get started.