Elliot Eisenberg, the nationally acclaimed “Bowtie Economist,” expects the fourth quarter of 2020 to be far less robust than the previous quarter, because “the easy stuff has been done. The low hanging fruit has been pulled off,” he said.
“The sectors of the economy that could recover quickly have done it,” said Eisenberg, Ph.D., a public speaker who specializes in making economics fun, relevant and educational.
“Sectors that took a little bit longer [to recover], they've done it,” he said. “And now we've got sectors of the economy that are going to have a harder time recovering, and they're going to struggle.”
Speaking at the Virginia Commonwealth University School of Businesses’ inaugural Kornblau Real Estate Industry Talks — held online Oct. 8 in lieu of what would have been the school’s 30th annual Real Estate Trends Conference — Eisenberg said this summer’s economic improvement proved to be both good and bad.
“The good news of that is we've recovered,” Eisenberg said. “The bad news is, there's no new recovery in [these areas] of the economy. … It's done. We're not going to see any rise in the [gross domestic product] anymore out of [retail or auto sales].”
After the economy flattened in March, those industries experienced unprecedented growth over the past three to four months, Eisenberg said. But they have since reached their previous trend growth rates — their long-term average rates of growth — which means those promising growth trajectories have come to an end.
“So retail sales aren't going to fix our economy anymore,” he said. “Auto sales aren't going to fix our economy anymore. … You have to find other sectors of the economy to be drivers, to push our economy up. And that's going to get increasingly difficult. That's why GDP growth is … clearly going to slow.”
Other key insights from Eisenberg included:
With federal aid declining, Eisenberg said, the loss of stimulus checks is going to hurt consumer spending.
“While a fiscal package will help on the one side, there’s never a free lunch in economics, as we know. The non-free lunch part is going to raise the debt and raise the deficit,” Eisenberg said. “But the question I want you to think about here is, ‘What’s the alternative?’ If we do nothing, that’s a conscious choice and all economic data that I can see … says it’s better to give the money even though there are negative consequences on the deficit and on work motivation as well.”
Women are a large driver behind the workforce decline because they have to stay home with their children when schools are closed. Whether it’s good, bad or fair that the burden typically falls to women is a whole separate conversation, Eisenberg said, but it doesn’t negate the importance of opening schools.
“This is critically important,” he said. “The kids are losing education. Our economy is losing employment, our labor force is declining unnecessarily here. This is really a travesty. If I could change one thing, if I were king for a day, it would be that we could get the pandemic out of schools so we can send our kids to school safe with the knowledge that they wouldn’t be sick. I’d live with all the other consequences, but if I could do one thing for the economy, it would be to get the schools to work.”
Other sectors remain weak because of the pandemic, Eisenberg said, including travel and tourism.
“We can do a lot of stuff on fiscal stimulus, but it's not going to help with those sectors,” he said.
Airline travel is rising, but at 30-some percent. It is slow, Eisenberg said.
“At this rate, if we rely on this speed of improvement, it will take five years or 10 years,” Eisenberg said. “So clearly we're waiting for a health care solution to some extent. People are just anxious to go on. …They're concerned, they're unwilling. They're nervous about it.”
Restaurants, bars and entertainment are all still struggling. One notable exception is the hotel industry.
“Hotel improvement was strong,” Eisenberg said. “The lockdown comes, things are awful. They deteriorate rapidly. And then the lockdown ends and there's euphoria. And suddenly people want to get out of their house, go on vacation and travel a little bit.
“People get in their cars. They drive somewhere, stay in a hotel. Affordable hotels are doing, as a result, much better than high-end, fancy hotels because of who’s traveling. What's the condition, why are we going somewhere? And you can see this terrific improvement for a number of weeks and months. And then the slope starts to slow down and then it flattens out."