In a recent RMA Philadelphia Chapter event, Philadelphia Fed President Patrick Harker offered insights into the current state of the economy, including commercial real estate; labor; and housing.
Fed President Harker noted that cautious optimism reigns and, even though GDP surged to a healthy annualized rate of 6.5% in the second quarter of this year as COVID-19 case rates dropped, consumer confidence has begun to decline with a GDP annualized rate of between 3% and 4% due to the advent of the Delta variant of COVID-19. There have also been significant supply chain issues. While demand for computers and appliances has surged in the last year, companies are unable to meet this demand due to the extremely short supply of computer chips used in the manufacturing of these electronic devices. Unfortunately, he noted, all indications are that these supply chain issues could persist for the next couple of years.
He said he expects GDP growth to come in at around 6.5% for 2021 and will moderate to 3.5% in 2022, and 2.5 percent in 2023. Inflation should come in around 4% for 2021 and then a bit over 2% for 2022 and right at 2% in 2023. Unemployment should fall steadily during this period as well.
Regarding how the commercial real estate sector will be affected due to more companies continuing remote work, Harker said that, even though the hybrid model of working is fine now, people will eventually go back into the office. He is just not clear what that will eventually look like. He mentioned that the culture in these organizations is taking a big hit, especially for onboarding of new employees who don’t know anything about the company for which they would be working.
Harker remarked that the economy has created 11 million jobs. However, they’re just not being filled. He said, although monetary policy has really nothing to do with this, it is the unemployment insurance that has some effect in holding people back from returning to the workforce, mainly due to fear of mass transit and especially childcare.
Regulators are monitoring the housing market very closely but, although affordability is very concerning, they are seeing a softening in the rise of home prices. Prices in the Philadelphia market have stabilized or even declined a bit, but they are still high in other parts of the country.
Finally, Harker acknowledged and praised banks for the outstanding job they did with managing the PPP program during the pandemic. However, one of his concerns continues to lie with microbusinesses, who have had no access to PPP due to their lack of banking relationship. He said it’s imperative that we get these businesses into the banking system, especially if we find ourselves amid another pandemic.