Prior to the pandemic, people wondered if the economy was too hot or on the brink of a recession. Were we seeing excesses? In a funny way, the pandemic reset the business-cycle clock, putting us back to an early stage of growth. If there were any excesses in January 2020, they were knocked out by the shutdown. Weak retailers that were already declining suffered accelerated exits. And unfortunately, many strong pre-pandemic businesses also suffered. Today, we do not have excesses but shortages, particularly in labor and production. However, there is no shortage of demand, so the pain that we are seeing is not due to a weak economy but a strong one that is temporarily imbalanced due to supply chain inefficiencies and “missing” or rebuilding businesses.
The greatest lesson of the last two years is one that we have long been preaching: Do not bet against the U.S. economy. We saw the power and resilience of the U.S. economy in the face of unbelievably adverse conditions. Think about it. We literally—not figuratively—shut down almost 40 percent of the economy for three and a half months. On top of that, we had a virus about which we knew virtually nothing at the outset.
In response, the U.S. came up with not one but two high-efficacy vaccines and enabled mass production and widespread distribution. The only people who are not vaccinated at this point do not want it. And on top of death and disruption from the pandemic, we had an election year with unsettling divisiveness, social unrest and sharply rising crime.
Yet there is ample evidence of a thriving economy. By the end of 2021, real GDP was 3.2 percent above where it was in 2019; most of us are wealthier; most of us have more savings; holiday sales were strong; we are at record-high job openings and almost anybody who wants a job has a job. While employment is 2 million jobs short of pre-pandemic levels, we know that jobs always lag GDP growth.
There’s evidence that other economic indicators are playing out favorably for commercial real estate. Inflation-adjusted apartment NOIs have never been higher, and in several other sectors, occupancy is strong and capital markets are flowing. While the office sector and weak retail properties are taking a hit, strong retail is thriving. Thus, despite unprecedented headwinds, the economy and real estate markets are rebounding. Of course, if none of this had happened, real GDP would be about 3 percent higher than it is, and employment would probably be about 5.5 million jobs higher.
We have always known it—and we remind our readers about it every five years or so—but we are living through the paradigm scenario of why it is ill-advised to bet against the U.S. economy.
Dr. Peter Linneman is a principal & founder of Linneman Associates and Professor Emeritus at the Wharton School of Business, University of Pennsylvania. www.linnemanassociates.com
Follow Dr. Linneman on Twitter: @P_Linneman