Following a turbulent year for the U.S. economy, the economic forecast remains cloudy going into 2021. As 2020 closes, the U.S. economy faces the strains of looming policy and economic uncertainty, surging coronavirus cases amidst the height of the flu season, and ongoing debates in Congress around another COVID-19 relief package for U.S. workers. Starting in March, fallout from the pandemic dealt severe economic damage to the country. During the second quarter, GDP contracted by an annualized 31.4%, the worst decline on record. However, a steep rebound (growth by an annualized 33%) in the third quarter signals that the start of a recovery is underway. Forecasts expect GDP to decline 4.3% for all of 2020, which would be the economy’s first full-year contraction since 2009. Similarly, forecasts suggest annual GDP growth of 3.6% for 2021.

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In its November monetary policy statement, the Federal Reserve said that, “the ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.” The Fed has thus committed to keep interest rates at their near-zero level until inflation moves above 2%, even until 2023, if necessary. This sustained pause on raising interest rates could lead to better deals for commercial property owners, who may be able to refinance with lower rates or get cheaper loans for new acquisitions.

As the coronavirus paralyzed much of the economy during the spring, more than 22 million Americans lost their jobs in March and April. This wiped out a decade of employment gains and raised the unemployment rate to 14.7%, its highest level since the Great Depression. By October, unemployment had reversed to 6.9%; however, gains were not created equal across sectors. Employment was still down by more than 40% in the movie, arts, and entertainment industries, numbers that could deteriorate further without federal help in the winter. Similarly, while 4.5 million jobs in leisure and hospitality have returned since April, the sector remains 3.8 million jobs below its peak in February.

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The pandemic continues to pose the greatest risk to the U.S. economy going forward, and full economic recovery relies on suppressing the coronavirus. Recent good news about the prospect of effective widely available vaccines suggests that this is the most likely path.
Still, any substantial recovery in the property markets is apt to lag that of the overall economy, and our “new normal" may have lasting impacts on occupiers and investors for years to come.

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