FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
July 27, 2021

IN THIS ISSUE:

1. 2Q GDP Report Expected To Show Another Strong Gain

2. Shortest (But Among Deepest) Recession In U.S. History

3. Eviction Moratorium Ends July 31 – Millions To Be Homeless?

Overview

We will touch on several topics as we go along today, beginning with the economy. On Thursday morning we will get the government’s first estimate of 2Q Gross Domestic Product, and most forecasters expect it to come in even higher than the 6.4% annualized growth in the 1Q. Many believe Thursday’s GDP report will be north of 8% (annual rate). The economy continues its strong recovery from last year’s COVID-19 recession.

Last week, we heard from the National Bureau of Economic Research (NBER), the government agency which determines when recessions officially begin and end. The NBER announced, not surprisingly, that the COVID-19 recession ended in April last year. What was surprising was the NBER said it was the shortest recession in US history, lasting only two months.

Elsewhere, in March of 2020, Congress passed the Coronavirus Aid, Relief and Economic Security Act (the so-called “CARES” Act) which included an eviction moratorium preventing landlords from evicting tenants who were delinquent in paying their rent. The moratorium was originally set to expire at the end of July 2020 but was extended four times to July 31, 2021. That’s this Saturday, and the Biden administration says it will not be extended further.

It remains to be seen how this all plays out. Some forecasters predict we’ll see millions of new homeless people wandering the streets over the next several months. Others think landlords will be reluctant to oust their tenants, especially if they believe those renters will soon get federal or state assistance with paying their unpaid rent. We’ll see.

2Q GDP Report Expected To Show Another Strong Gain

On Thursday, the Commerce Department will release its first estimate of 2Q GDP. The pre-report consensus among forecasters is a gain of 8.4% (annual rate) following the 6.4% gain in the 1Q. If Thursday’s estimate does come in around the consensus expectation noted just above, it will be the second strongest quarterly showing since the early 1980s.

Most forecasters believe US economic growth will slow in the second half of this year and fall further in 2022 to more normal levels between 2% and 3% going forward. This outlook, of course, depends on the COVID-19 epidemic, which as you know is on the rise once again.

The Shortest (But Among Deepest) Recession In U.S. History

The last year has seen an unprecedented swing in the US economy due to the effects of the coronavirus. As you can see below GDP plunged by over 30% in the 2Q of last year when many businesses were locked down, only to be followed by a huge gain of over 30% in the 3Q as businesses reopened. Despite the strong rebound, we’re still about nine million jobs shy of where we were prior to the pandemic.

The question on everyone’s mind is whether the COVID-19 recession is really over, especially with cases of the Delta Variant on the rise. It is impossible to know if the latest surge in new cases and deaths will be bad enough to send us into a new recession in the months ahead. However, the government agency which officially determines the start date and end date to recessions declared last week that the COVID-19 recession is not only over, but also that it was the shortest US recession in history.

Last week, the National Bureau of Economic Research (NBER), the government agency responsible for identifying recessions, announced that the COVID recession began and ended last year. Now, this conclusion was not really a surprise.

What was surprising? The NBER announced the end date for last year’s economic downturn was April 2020, only two months after the NBER said it started. Given those dates, this was the shortest recession (at two months) in US history. It was also, however, one of the deepest, with a decline in economic activity of almost one-third – specifically, 31.4% annualized in the 2Q.

You might be thinking a drop that fast and hard would take longer to recover from than two months. And historically, it has. But given the massive stimulus from the federal government and the subsequent snapback in the economy, which recovered a substantial portion of the decline in the next quarter, the NBER had this to say:

“In determining that a trough occurred in April 2020, the committee did not conclude that the economy has returned to operating at normal capacity. . . . The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession associated with the February 2020 peak. The basis for this decision was the length and strength of the recovery to date.”

And this, I think, points out just how different this recession and recovery have been from anything we have seen before. It also highlights the fact that the recession and recovery were so short because of self-imposed policy actions, rather than due to naturally occurring economic factors. It was the shutdowns which killed the economy and the stimulus which brought it back so quickly.

In other words, it was a recession, but it was not an economic recession. The NBER recognizes the economic effects (ie - we did have a bad recession), but it also recognizes the causes were very different. It remains to be seen how historians will describe the record-short COVID-19 recession of 2020.

Eviction Moratorium Ends July 31 – Millions Could Be Homeless?

In the space we have left today, I want to focus on a topic which could spark an economic nightmare just ahead – but is getting little to no coverage in the mainstream media.

In March of 2020, Congress passed the Coronavirus Aid, Relief and Economic Security Act (the so-called “CARES” Act) which included an eviction moratorium preventing landlords from evicting tenants who were delinquent in paying their rent.

The national moratorium has been challenged in several courts and its expiration date has been extended four times. It is currently set to expire this Saturday, July 31, and federal officials (including President Biden) have indicated there are no plans to extend it again.

Throughout the moratorium, there has been confusion among renters and landlords regarding federal rent assistance. Landlords complain that some tenants have abused the moratorium by not paying rent, even if they have the money to do so. Tenants complain about the complicated paperwork and the long wait to receive rent assistance funds.

More than 11 million Americans — 16% of renters — are still behind on their rent payments, according to analysis by the Center on Budget Policy and Priorities. Some believe the numbers are far higher. And the moratorium ends this Saturday!

Congress approved more than $46 billion in rental assistance between last December and March for both tenants and landlords, but getting the money into their hands has proved hard for both the federal government and state and local agencies.

Exact amounts of assistance renters and landlords can receive depend on their income and where they live, but renters could get enough to cover rent from as far back as March 13, 2020, unpaid utilities and even, in some cases, future rent. The problem is, the assistance is just not getting to where it needs to go.

The Treasury Department claims that more than $1.5 billion in assistance was delivered to eligible households in the month of June alone — nearly triple the amount distributed since April. Administration officials point to this as a pivotal sign of progress in the program and an indication that once local communities establish a system for handling the money, they will be able to distribute it quickly. That’s good news but, again, the eviction moratorium ends in four days!

The White House announced last week it will convene a meeting of over 2,000 local officials, landlord and tenant advocates, legal experts and other participants from 46 cities to answer questions and raise awareness about emergency rental assistance and eviction prevention strategies tomorrow (Wednesday).

Yet how is that going to help with the deadline looming for landlords to commence eviction proceedings starting next week? I don’t know. With such a big pow-wow at the White House tomorrow, I would think there would be a lot of media coverage on this dire situation on the Wednesday evening news. But we’ll see.

Bottom line: There is a definite risk that millions of renters could be evicted and put on the street just ahead. Now I understand the eviction process is a complicated one, including in most cases going through courts. So, it’s not going to happen immediately after the deadline this Saturday. Yet this could be an economic nightmare over the next several months.

Finally, given the economic magnitude of the start of mass evictions for millions of delinquent renters, and the psychological impacts it would have on the country at large, I could see this throwing stocks into a major correction just ahead.

Hopefully, federal and state agencies can get up to speed muy pronto and assure landlords that the money is coming and convince most not to initiate the eviction process a few weeks longer.

Wishing you well,

Gary D. Halbert

SPECIAL ARTICLES

Millions of Tenants at Risk of Eviction – Billions in Rental Aid Undelivered

Eviction Moratorium Ends July 31 – Courts Brace For Eviction Cases

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