While we may not have a magic wand to reveal the future, we have the next best thing! View our 2021 Mid-Year Economic Update webinar to catch a glimpse of how your business may be impacted by possible market and industry trends.
Leading economist, Anirban Basu, Chairman and CEO of Sage Policy Group, Inc., delivers an insightful, entertaining “Chamber of Data” themed presentation that pays a subtle homage to the Harry Potter series. Don’t worry, we didn’t let the sorcery get out of hand.
During this webinar, Basu delivered economic data and an analysis juxtaposing the pre-pandemic and pandemic world, as well as a forecast for the post-pandemic environment. Among the areas of focus are:
- Labor Markets
- Financial Markets
- Real Estate
- Construction
- Consumer Spending
- Business Investment
- International Trade
- Government Finances

Meet the Presenter:
Anirban Basu, Chairman & CEO of Sage Policy Group, Inc., is known as an economist with a personality, and alternatively, one with a sense of humor. Though the numbers and data are important, Basu and his team are highly skilled at translating economics into themes that audiences find compelling and understandable – regardless of the trade.
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Below you will find short video clips from the full presentation that highlight key topics such as: the current state of the economic recovery, the implications of post-pandemic behaviors on commercial real estate and small business, and predictions for the second half of 2021.
The U.S. Economic Recovery Pattern
Was it a "V," was it a "K"? What did the recuperation of the U.S. economy look like, and what are the implications for what's to come?
Evolutions in the U.S. Unemployment Rate
What progress has occurred in unemployment, where are we today and what nuances continue to impact the labor market?
Is a Financial Crisis on the Horizon?
Will deficit spending eventually wreak havoc and when?
Economic Recovery Trends on Commercial Real Estate
Lasting post-pandemic behaviors are creating challenges for the commercial real estate sector, but opportunities are present.
Demand, Supply and Small Business Reluctance
While current demand indicates opportunities for growth, lagging supply joins the list of reasons small businesses are holding out.
Predictions for Second Half of 2021
What factors will present optimism or challenges for ongoing economic growth?
Many questions were submitted throughout the webinar presentation. This section includes questions and answers to the most commonly asked questions and related themes.
Questions on General Economy
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Are there predictive indicators as to when interest rates will start increasing and at what pace? What do you think will be the highest level the 10-Year Treasury will trade at over the next two years?
Interest rates appear to be stable now with the Federal Reserve committed to quantitative easing. That will change in 2022 when chatter around tapering becomes more apparent. That should produce the long-awaited increase in interest rates and net interest margin.
Only a guess, but over the next two years, the highest level the 10-Year Treasury will achieve will be south of 3%.
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What are the strongest business market trends in this economy?
We will observe growth and profits in:
- Social media platforms (advertising behemoths).
- E-commerce (Bezos wins).
- Cybersecurity (issue of the day).
- Domestic manufacturing (reshoring is real).
- Two-year colleges/apprenticeship programs (growing aversion to student debt).
- A bevy of emerging technologies, including electric vehicles, 3D printing, artificial intelligence, augmented reality, virtual reality, drones, cloud computing, robotics and software/applications.
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When is the supply chain expected to get under control?
The current bout of inflation is concerning, but it does not appear to be enough to impact broader economic momentum. True: Manufacturers, homebuilders, swimming pool owners (chlorine) and others are complaining, but aggregate demand is powering through it all. Inflation should begin to subside later in 2021 and into 2022 as global supply chains become more orderly and additional capacity comes online.
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Can you touch on the economic forecast considering the potential increase of the COVID-19 variant?
The Delta variant’s ongoing spread through American society will take some of the edge off the pace of economic recovery during the year’s second half, but the pace of recovery should still be rapid as quantity supplied rises up to meet (or more nearly meet) quantity demanded.
Questions on Deficit Spending and Inflation
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Which components of inflation do you expect to be transitory? I have particular interest in how ongoing inflation will affect assemblies manufactured from brass, aluminum and steel.
Commodity price inflation is largely transitory, but inflation in labor-intense settings like food production and restaurants, less so. Capital intensive output like brass, aluminum and steel should be experiencing deflation at some point next year.
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What are your inflation and interest rate projections for the coming years?
Interest rates have to be headed higher relative to inflation. It’s an economic equation. As the Federal Reserve removes accommodation at some point over the next two to four years, interest rates will rise and inflation will soften. Indeed, inflation will soften before then.
Inflation target is 2.9% for 2022 and closer to 2% thereafter (guess).
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How will inflation positively/negatively affect our real estate investments? Is it better to hedge our capital into rental properties now to protect from inflation or sideline and wait for the market to cool down before purchasing additional properties?
Inflation is damaging to real estate values to the extent that it raises the cost of capital. When cost of capital rises, cap rates tend to as well. To date, inflation has not been problematic because interest rates have actually declined as excess inflation has manifested itself. That can’t continue forever. I don’t think it’s a great time to be a buyer. Upside is limited as we approach affordability constraints.
Questions on Small Business
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What are the most important blind spots small business should be preparing for?
Small business blind spots include:
- doing what is necessary to hold onto the best workers, including raising pay;
- cybersecurity is a genuine consideration; and
- always maintain a great working relationship with one’s banker and key suppliers of insurance.
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What is the current outlook and impact to small businesses affected by the pandemic? How do they remain relevant and sustainable?
The outlook for surviving small businesses is very good. Economic recovery will continue to be brisk, and there is less competition!
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How do you see the increased spending/budget helping small business?
Federal spending has supplied much to small businesses, particularly through the PPP. Federal spending also supported employees who were let go by such businesses by supplying federal supplements to state unemployment insurance benefits. To date, this spending has occurred without raising interest rates, which confounds economic theory (5.4% CPI vs. 1.3% 10-Year Treasury yield.) However, all this stimulus has placed additional inflationary pressures on small businesses and likely rendered it more difficult for them to staff up as the economy reopens.
Questions on the Workforce
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Why are we still having such challenges getting people back into employment?
It has been difficult to get labor back into the game in sufficient numbers for many reasons, including: a) stepped up unemployment insurance benefits; b) cultural factors, including greater choosiness among jobseekers; c) lingering fears of both vaccination and the virus; d) substantial stimulus payments and attendant savings; e) childcare issues. Necessity is the mother of invention. Paying bills is necessary. Ergo, expect labor force participation to rise meaningfully this fall.
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How much will the expected reduction in federal employment supplements in September actually improve the staffing environment (hospitality, in particular)? Are we at the end or the beginning of a brutal labor market?
There is a big debate in the economics community, but I believe the stepped-up unemployment insurance benefits have induced many people to stay out of the labor market for the time being. As those federal benefits disappear (September 6), many should be induced back into the labor market. That should improve circumstances for retailers, restauranteurs, hoteliers and others, especially since the summer rush will be over by then.
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What impact may a hybrid model have on office vacancy rates, and is it possible it could trigger a spike in foreclosures if a strain on debt-service payments is created?
I’ve spoken to many commercial real estate brokers striving to downplay the likely impact of remote working/hybrid models on office space leasing. I think the negative impact on office space utilization will be massive, and that could trigger financial issues for many building owners as lease rates slide and as many tenants choose not to renew their lease or opt for less square footage.
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Will the "great resignation" have lasting affects on our economy or will it be a short blip on the radar screen that propels us further as a nation, as more people seek fulfilling careers where their passion and purpose intersect?
The great resignation is real, especially among Baby Boomers. Some Boomers retired early because of asset price increases, but the majority of those who retired early lost a job toward the initial stages of the pandemic and just threw in the towel. It seems to me that many young people will be induced back into the labor force to pay bills, but many Boomers are out of the game altogether.
Questions on Specific Industries
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What sectors will the stock market favor?
At some point, expect a rotation to safer stocks with lower beta. The equity value boom in tech can’t last forever, right?
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Should construction focus on single-family oy multi-family for the coming year?
Single-family construction will be stronger than multi-family during the year ahead.
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How will long delays in availability and increased costs for all materials affect the construction industry? What is the short- and long-term forecast?
The construction industry will be hamstrung by elevated materials prices through at least 2021’s fourth quarter. I still see some pain into 2022, however. Recent surge in copper prices is worrisome. Softwood lumber prices could also bounce back as residential permitting picks up steam.
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How does the ag market situate itself in an inflated market?
In an inflated market, the agricultural sector is likely to experience additional consolidation. In other words, corporate ag processors will continue to gain market share. That is all the more likely because of the demographics (age) of America’s farmers.
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How does the real estate market look for the remainder of 2021 and 2022?
Owner-occupied residential real estate market looks very strong in ’21 and ’22, but commercial real estate (office, hotels, retail) remains a vast underperformer.
The real estate run will eventually be slowed by a combination of elevated prices, rising housing production and an inevitable rise in mortgage rates.
Real estate financing has remained reasonably disciplined in recent years. I don’t see that changing. The marketplace was chastened by lending practices of 15 years ago.
For full citations and sources, please view the full webinar presentation. This content was recorded on July 12, 2021. The thoughts and information provided regarding the 2021 Economic Outlook topic are those of Anirban Basu, Chairman & CEO of Sage Policy Group, Inc., and is not advice from your bank.
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