The economic recovery from the COVID-19 pandemic will be different from the recoveries that followed past recessions, Marci Rossell told AICPA governing Council members on Wednesday.
Economic downturns typically originate in a sector such as housing, finance, or manufacturing and ripple through the economy from there, said Rossell, an economic forecaster and former chief economist at CNBC.
The pandemic recession, however, started as an external shock that quickly moved into the economy. Because it started differently, the typical forecasting road map of recession and recovery won’t apply to this event, Rossell said. For instance, it’s unusual to experience a labor shortage during an economic recovery.
“So now we’re living in this world where, instead of having a typical excess of labor at the end of the recession, in some sectors they have what appears to be a shortage of labor,” Rossell said during a preconference telephone interview. “So all the typical indicators are turned upside down.”
But that doesn’t mean it’s impossible to predict what’s going to happen in the months ahead as CPA business leaders plan their post-pandemic strategies. Rossell provided Council members with a series of tips that can help.
The demand for housing is real, not a bubble
The pandemic escalated the Millennials’ move to the suburbs from densely packed apartments in cities, Rossell said. New work-from-home arrangements that may become permanent will continue these trends, she said.
“Many workers will be working from anywhere, which means they have demands for more space at home and higher-quality space,” Rossell said. “So that drives real demand, and homebuilding has not kept up with population growth in the United States since the 1970s.”
There was a gap between Baby Boomers’ moves out of suburban homes and Millennials’ moves into those homes, Rossell said. But now the Millennials are ready to take up residence in the suburbs, she said.
Inflation is transitory
Rossell said the inflation seen in recent weeks in some parts of the economy is not permanent or the result of a change in the structure of the economy that would lead to an escalating crisis like the one the United States experienced in the 1970s.
“This instead looks more like individual market disruptions, similar to what we experienced with toilet paper back in the spring of last year,” she said. “We’re experiencing it with things like lumber.”
Rossell said the supply of items such as lumber will catch up with a demand that she believes is temporary. She said if the demand were not temporary, lumber mills would be expanding. But she said the mill owners understand that the rise in demand will not last forever, and after a time the supply and demand will settle into a long-term equilibrium.
That price might settle at a higher spot than the pre-pandemic level, but Rossell said the current soaring prices are part of transitory panic buying that is not sustainable.
Rossell said that even though the demand for housing will remain strong because of a lasting change in the way people will work and play due to the pandemic, she does not expect this to have a long-term effect on lumber demand.
She said home building, which is the driver of lumber demand, is unlikely to keep up because of tight zoning and a decline in the number of home builders that followed the financial crisis that began in 2007. Home building in the United States has failed to keep up with population growth for decades, Rossell said.
Labor shortages are here to stay
Although Rossell said generous unemployment benefits might be part of the reason for labor shortages, service sector employers were having trouble finding employees before the pandemic.
“The pandemic just put a rocket booster on that trend, and so there are many trends in the economy that were escalated by the pandemic,” she said. “For instance, the movement to online retail, the movement to remote work, the move to remote medical care.”
In hard-hit sectors such as retail and hospitality, Millennials are aging out of jobs and a decline in immigration is diminishing the workforce for entry-level jobs, she said. Business leaders will have to overcome the labor shortage by paying higher wages and implementing more automation and self-service options for their customers, she said.
For instance, although fine dining in the restaurant industry will retain table service, low-cost and moderately priced establishments will turn more to takeout options and models where diners order at the front of the restaurant and take their meals back to their table, Rossell said.
Office needs will decline for years
The move toward work-from-home jobs will put downward pressure on commercial office space needs for years.
“Because leases are long-term, this is a trend that will take years to play out,” Rossell said. “But there will be consistent downward pressure on price per square foot over the next decade.”
As the labor shortage leads to people being replaced by technology, companies will need less office space to hold their people.
“There are probably going to be some bankruptcies, and that’s how you adjust to a new reality where the need for office space is permanently less than it was before,” Rossell said. “So it’s a permanent trend rather than a temporary trend.”
Managers will have to treat young people differently
Young people in the U.S. workforce have lurched through crises throughout their lifetimes and have been affected by Sept. 11, the financial crisis that started in 2007, and the COVID-19 pandemic.
Rossell said they are taking their places in the workplace alongside older people who grew up in the 1980s and 1990s amid enthusiasm over the fall of the Berlin Wall, technological advances, and economic prosperity.
These two generations of workers have very different worldviews, Rossell said.
“Recognize that [younger workers] will have to be managed very differently,” she said. “Their concerns will be very different. They will perceive the world to be a much riskier, much harder place to navigate. The economy, in their minds, is very unfriendly.”
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.