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IMG Global Growth Forecast

  • According to a recent forecast, the International Monetary Fund projects that the world economy will grow by 6.0% in 2021, followed by 4.4% in 2022. Their most previous estimates projected global growth to be 5.5% and 4.2%, respectively. The forecast was revised up to reflect an increase in vaccine rollout throughout the world and the $1.9T in fiscal stimulus recently injected into the US economy.
  • The IMF forecasts that the US economy will grow by a lofty 6.4% in 2021, which would exceed its prepandemic growth potential for the year. In contrast, most other advanced nations are not likely to return to pre-covid growth levels until 2022 at the earliest, according to the report.
  • IMF Chief Economist Gita Gopinath notes that the recent projections reflect diverging trends between advanced and developing nations. A combination of differing degrees of fiscal policy support, slower vaccine rollouts in under-resourced nations, and many countries’ reliance on tourism are likely to lead to an uneven global recovery

Proposed Infrastructure Plan

  • On March 31st, President Biden introduced a $2T proposal to upgrade US infrastructure through increased government spending and tax credits that would be used to implement repairs and the new construction of roads, bridges, medical facilities, and utility lines throughout the nation.
  • The plan includes $650B to construct new schools, housing, utility infrastructure, and an expansion of broadband networks. The proposed spending could supply an estimated 2M new homes and commercial buildings.
  • A proposed $621B would go towards transportation, which includes repairs for roads and bridges, manufacturing incentives and civic infrastructure to expand electric vehicle utilization, and public transportation modernization. Additionally, roughly $300B would be set aside for research & development into new technologies, including clean energy.
  • Another $400B would be set aside for caregivers, provide funding for housing for the elderly, and expand portions of Medicaid.
  • The White House’s proposal would be paid for through new tax revenues over the next 15 years, it says, through an increase in the corporate tax rate and regulatory incentives for multinational companies to produce more within US borders. The Administration has signaled a desire to raise the corporate rate to 28%, seven percentage points above its current level of 21%, but below the pre-Trump Tax Cut rate of 35%. Some critics warn that raising the corporate tax rate could make the US economy less competitive than lower-taxed nations. However, Treasury Secretary Janet Yellen recently stated that she is negotiating with G20 countries to institute a global minimum corporate tax rate.

Job Growth

  • Total nonfarm payroll employment increased by 916k workers in March, improving on the 468k gained in February. After decelerating through the end of the year and even shifting back to net job losses in December 2020, the labor market has now regained momentum heading into the Spring.
  • Leisure and Hospitality, the pandemic’s most adversely impacted sub-sector, slumped back into contraction in December and January. However, in February and March, the sector resumed its recovery, adding back 384k and 280k jobs in the two months, respectively. Compared to its pre-pandemic peak, Leisure and Hospitality employment remains down by 18.5%, accounting for a deficit of 3.1m jobs.
  • According to the ADP’s National Employment Report, which covers private-sector payrolls, smaller companies are leading the labor market’s resurgence. Companies with less than fifty employees represent roughly 42% of all private-sector payrolls, while they accounted for more than 50% of payroll growth last month.

Unemployment Rate & Labor Force Participation

  • The civilian unemployment rate (U-3) ticked down again in March, falling 20 bps month-over-month to 6.0%. Compared to the April 2020 high of 14.8%, the unemployment rate is now down by an encouraging 8.8%. Moreover, the current jobless rate sits just 2.5% above the generational low of 3.5% notched just before the pandemic.
  • The U-6 unemployment rate, a measure that includes the headline U-3 measure in addition to marginally attached workers and laborers who are working part-time for economic reasons, also posted declines in March. For the month, U-6 fell by 40 bps to 10.7%— 20 bps attributable to declines in U-3 and 20 bps from the marginally attached and part-time for economic reasons component.
  • The labor force participation rate (LFPR) nudged up to 61.5% in March, improving by 10 bps from February. The LFPR dropped 3.2% between January 2020 and April 2020, hitting 60.2%, the lowest reading since 1972. In the months since the LFPR has only regained 1.3%, representing 41% of lost ground on a relative basis.

Job Openings & Labor Turnover Survey

  • Job openings have surged in recent months, reaching 7.4m through February, according to the BLS’s Job
    Openings & Labor Turnover Survey. After the recovery stalled to end 2020, the beginning of 2021 has seen a
    resurgence, gaining 347k and 268k openings per month in January and February, respectively. Most notably,
    the number of job openings now sits above the pre-COVID level of 7.0m measured in February 2020.
  •  While the recovery in job openings is promising, there still remains a surplus of available workers compared
    to labor demand. Before the pandemic, the ratio of job openings per unemployed worker plateaued near
    1.2, reflecting more available positions than résumés to fill them. In April 2020, this opening-to-unemployed worker ratio sank as low as 0.2. Through February, the ratio has improved to 0.74, or for every four Americans looking for work, there are three positions available.
  • After the initial surge in hiring activity post-shutdown, momentum quickly slowed. Between June and December 2020, new hires fell in five-of-seven months. The tide has started to turn early in 2021, \ posting month-over-month increases in both January and February, settling at 5.7m in the latest release.

Stimulus Payment Usage

  • Direct stimulus payments from the $1.9T Covid Relief Bill have been rolling out to individuals and households for the past four weeks, but we are just now getting a glimpse into how recipients have spent it so far.
  •  According to the Census Bureau’s Household Pulse Survey (HPS), covering the two weeks between March 16th and March 29th, 2021, 49.9% of all households that received a stimulus check during this period claimed to have “mostly used it to pay off debt.” 31.6% of recipients claimed to have “mostly saved it.” while 18.5% of recipients claim to have “mostly spent it.”
  • For perspective, during the first two weeks of the rollout of the second stimulus bill, spending on consumption and debt payments were proportionally higher while savings rates were lower. According to the HPS covering the period from January 6th to January 18th, just 26.0% of recipients mostly saved their payments, while a hefty 52.1% of recipients mostly used it to pay off debt. 21.9% of recipients at the time claimed to have mostly spent their payments.
  • These findings suggest that American households, on average, are in stronger financial positions than they were at the time that the second stimulus package passed, with a marginally higher degree of people saving their relief checks than spending them.

Inflation Expectations

  • On Monday, April 5th, 2021, the yield spread between the 10-Year Treasury and the 10-Year Treasury Inflation-Indexed Security (TIPS) stood at 2.35% and has not fallen below 2.30% since March 23rd. The spread between the two measures serves as an estimate of financial markets’ inflation expectations.
  • The spread between the 10-Year Treasury Note and 10-Year TIPS fell as low as 50 basis points in March of last year, shortly after the earliest COVID travel and activity restrictions were put in place. In the months following, the spread began to climb again, surpassing its January 1st, 2020 mark of 1.80% on August 31st.
  • The rising spread suggests that the market anticipates higher domestic inflation over the next ten years than it did before the start of the pandemic.

Apartment Renter Performance

  • The NMHC’s Rent Payment Tracker reports that 79.8% of apartment renters made at least a partial rent payment by April 6th, down from 80.4% on the same day last month.
  • Through the end of March, 95.9% of renters made payments, a 2.4% increase from February. March has the highest share of rent payments by month’s end since June of 2020 and is the first time that the payment rate has reached 95.0% or above since July.
  • January 2021 saw the lowest end-of-month share of rents since the pandemic began when just 93.2% of rent payments were made. The rising payment rates may reflect how reduced COVID fears, improving economic conditions, and additional stimulus relief have improved many renters’ financial circumstances.

REIT Proposed Rule Changes: Retail Revitalization Act

  • A recently introduced bipartisan bill aims to bring relief to Commercial Real Estate’s Retail sector through a change in the tax code that governs how real estate investment trusts (REITs) may invest their capital.
  • The plan dubbed the “Retail Revitalization Act” would increase the equity ceiling that a REIT may own of its tenant from 10% to 50%.
  • The proposal would also umbrella REIT ownership attribution rules under the Internal Revenue Code’s general rules while eliminating “double downward” attribution of related party rents. Additionally, the act would make similar changes to the limitation on space that REITs may lease to their taxable subsidiaries.

CMBS Delinquencies

  • According to Trepp, the Delinquency Rate on CMBS loans dropped by 22 bps in March to 6.58%. The March improvement follows the 78 bp drop measured in February— a total that still stands as the single largest improvement since the start of the pandemic.
  • The share of loans that are 30 days delinquent ticked up by 12 bps, rising from 0.58% to 0.70%.
  • Distress remains most concentrated in the Lodging sector, where the CMBS delinquency rate sits at a stratospheric 15.95%. Still, the March data reflect some improvement. The share of non-performing Lodging loans dropped by 281 bps in February and another 43 bps in March. Twelve months ago, Lodging sector delinquencies sat at just 1.53%, with only Industrial loans performing better.
  • The Retail sector retains the second-highest CMBS delinquency rate at 10.89%, though it did improve an encouraging 94 bps month-over-month, outdoing the 85 bp drop measured in February.
  • Both Multifamily and Office CMBS loans saw delinquency rates rise in March. Multifamily saw its delinquency rate rise by a concerning 84 bps, settling at 3.14%. The Office sector saw a more benign increase in delinquencies, rising 17 bps to 2.21%. Industrial CMBS loans, meanwhile, remain at a rock-bottom 0.73% through March, improving 15 bps month-over-month.

Summary of Sources