United States Outlook

The recent uptick in the U.S. labor market is welcome news following an exceptionally rough 2020. The heaviest and most persistent damage to the economy last year was sustained in the labor market, which shed around 22 million jobs in March and April of 2020 following the outbreak of the novel coronavirus pandemic and the public health responses to it. The crisis sent the U.S. unemployment rate soaring from 3.5% to 14.8%. While it was initially hoped that many of these job losses would be temporary, as of March 2021, only 62% of the jobs lost have been recovered, 8.5 million positions below pre-pandemic levels, or around 5.5% lower. The U.S. unemployment rate has fallen to 6.0% since the height of the crisis. While no sector of the economy gained jobs in 2020, some sectors fared better than others. Around 40% of the job losses occurred in Leisure and Hospitality alone, although strong growth is expected in this sector in 2021. Financial Activities and Professional, Scientific, Technical and Management Services were relatively unscathed. As these figures suggest, lower income workers have been hit the hardest by the labor market fallout.

If the labor market has been the weakest aspect of the U.S. economy, residential real estate has been by far the strongest. Sales of single-family homes in the nation increased 23% from December 2019 to December 2020, compared to 10% growth from December 2018 to December 2019. At the same time, home prices increased by 13% throughout 2020, compared to 8% growth across 2019. The strength of the housing market has been driven by two primary factors: 1) mortgage rates hit historic lows in 2020, as the Federal Reserve slashed interest rates in response to the pandemic’s economic fallout; and 2) since the labor market damage in 2020 predominantly affected lower-income workers, the typical home-owner, who is wealthier, has been relatively unaffected. With inventories at record lows, and increased savings (U.S. savings rates have proliferated during the pandemic), this created a cocktail for sharp price jumps. Looking ahead, low inventory and still-friendly mortgage rates, should continue driving significant sales and price appreciation in 2021.

With the fast pace of the vaccine rollout and with restrictions on business activity being scaled back nationally, 2021 will herald a strong bounce in hiring for the U.S. economy. A combination of high savings rates and continued fiscal and monetary support have set the stage for the economy to return to its pre- pandemic trend by the end of the year.