Economist predicts ‘spectacular’ second half ’21 rebound
WILMINGTON – When noted regional economist Anirban Basu addressed the New Castle County Chamber of Commerce at a packed conference at the Chase Center a year ago, he highlighted a booming job market and concern of surprisingly low inflation.
A year later, much has changed.
Speaking to the chamber Feb. 5 in a virtual web conference, Basu, who serves as CEO of Baltimore-based firm Sage Policy Group, was prognosticating when our lives may begin to return to some sense of normalcy after the COVID-19 pandemic upended the world’s modern society. In his view, it may be coming sooner than we think.
Basu noted that after a 5% and 31% quarter-over-quarter drop in gross domestic product in the first and second quarters of 2020, the United States posted 33% and 4% gains in the third and fourth quarters, finishing the year down only about 3.5% overall.
“That’s a V-shaped recovery,” he said. “I’m not suggesting that we’re back to where we had been, of course we’re not. But what I’m suggesting is the U.S. economy has demonstrated that, under the right circumstances, it can bounce back quickly.”
Basu noted that consumer sentiment and savings have also both risen, according to federal and research studies through the pandemic. Average savings of personal disposable income rose from 8% pre-pandemic to as much as 34% in April, when stores were largely closed and Americans received stimulus payments from the government. As late as December, however, Americans were still saving more than 13% of their income on average, meaning that there is plenty of pent-up spending demand.
What is more concerning is the supply side of the economy, where employers and small business owners are not as confident about the near future, Basu said. That’s due in part to the fact that the global economy remains restrained with restrictions still in place in many overseas countries where companies may be obtaining parts and goods.
Basu believes the confluence of pent-up demand with slowly improving supply chains will result in a “spectacular second half of 2021,” with U.S. GDP growth as high as 7% in his estimation.
What kind of workplaces and jobs we return to after months of remote work or unemployment remains to be seen though.
According to Basu’s research, the number of employed New Castle County residents had fallen by 12,458 year-over-year by December, a 4.3% reduction. While still not a positive situation, it was remarkably better than April when more than 40,000 residents had lost their jobs.
Over March and April, America lost 22 million jobs – essentially wiping out more than nine years of job gains in a matter of weeks. Since then, the United States added jobs in every month from May to November, but still had about 9.6 million fewer jobs in January 2021 than the year prior.
“This economy has stalled,” Basu said, noting that until consumers could comfortably begin spending widely again, the job gains would not break pre-pandemic levels.
As vaccinations become more widespread, however, Basu said that Delaware was well-positioned to reap the benefits.
“The suburbs are the winners. Wilmington is a city, but New Castle is also a suburb of the Philadelphia Metropolitan Area, one of our largest metropolitan areas and a quite prosperous one. In my mind, that positions New Castle County for some very good economic times, demographically and economically, this decade,” he said.
The economist also said that he believed leisure travel would return quite rapidly, a good omen for areas like Sussex County that depend on tourism dollars. Those gains likely won’t return quickly for business travel-oriented businesses though, as web conferencing platforms have proven a worthy way to cut down on the expense of in-person events while delivering the same results, he estimated.
For similar reasons, Basu also argued that commercial real estate is in a “crisis,” especially central business district office space that typically demand higher rents.
“I think for many people the era of commuting to work five days a week is over,” he said, noting that with fewer staff members reporting in daily and a desire of employees to be closer to home, more companies may be convinced to move to cheaper space in the suburbs.
Despite the potential for such movement out of cities like Wilmington, Basu added that Delaware and its largest city still has the potential to attract businesses from nearby metro markets, like Philadelphia, New York and Baltimore, where rents are even more expensive.
“I think Delaware has managed to craft a really nice tax environment and very comfortable business climate relative to other Northeast states,” he said.