A few months ago, I wrote a “doom and gloom” column on the fate of our economy and particularly government finance in the face of the COVID-19 pandemic. It fit with the tenor of the times and reflected the various indicators of economic activity.
These included unemployment, housing sales and state and local government receipts. They were all grim. However, six months later, our local and national economy, even acknowledging a few areas for concern, is surprisingly healthy. There are even a few pleasant surprises.
Let’s start with one of those surprises: the savings rate. Americans as a rule are bad savers. However, with the pandemic, we stayed at home. We didn’t go to restaurants. Since many of us worked at home, we didn’t buy new clothes, we didn’t spend money at the hairdressers or the barber, and since we didn’t go anywhere, we didn’t buy that much gasoline.
As for the summer and fall travel seasons, for the most part, they didn’t happen. Domestic air travel fell to a fifth of what it was the year before.
So, this is where it gets interesting. What happened was that the national savings rate reached levels we haven’t seen since World War II. At one point during the height of the pandemic, we were saving a third of what we earned.
However, that didn’t last, and in February 2021, the latest month for which data is available, we saved 19.8% of our income. That is still incredible by U.S. standards. Compare it to the modest 8% we saved in March 2019. What this means is that as things loosen up, we’ll go back to spending – it’s the American way – probably leading to a boom economy.
Then there was housing. I don’t think many people saw this coming, but locally and nationally, housing sales are in overdrive. Call it a pandemic housing boom. In Northern Virginia a common experience is to list a house and have it sold in a few days.
The primary reasons are that interest rates are very low, combined with a strong willingness to lend. Old houses are selling, new developments that had been on hold resumed building, and real estate agents, title companies, closing specialists and lawyers are busy again.
One aspect of the local real estate picture that deserves a cautionary note is office space. The Northern Virginia office space vacancy rate is 19%. That means almost a fifth of all those office buildings – and there are 129 million square feet of private office space in the region – is empty. Several buildings in Fairfax I can think of – low rise offices – haven’t had an occupant for months. Where this is headed, given that the future of work is changing, is an open question.
So, where does America stand now that we can at least imagine the end of the pandemic? All in all, not bad. Our economy hit bottom for several months but has rebounded. The national stimulus and relief legislation helped immensely. Almost a million new jobs were created in March, and unemployment, which was in the double-digits a year ago, is at 6.0%. More than some would like, but not bad. Virginia’s rate is even lower, 5.1%.
Another issue has been government finance. The warning a few months ago was that state government finances were in for a drubbing. However, that didn’t happen. Receipts were down for a while, but it looks as though Virginia is ending its fiscal year (which closes at the end of June) with increases in sales taxes receipts, corporate tax revenue and, thanks to all the home purchases, a big increase in real estate transfer tax payments. The latter, one of those many charges you pay when you buy a house, is a nice little money maker for the state. So, for now, Virginia’s books are in a good place.
There are some dark spots. All sorts of service workers continue to be out in the cold, while some employers are having trouble hiring. They are one of the reasons, in spite of my rosy report, that food banks have been having a tough time of it recently.
Alas, the economy has a bad habit of not doing what forecasters say it’s going to do. That’s why economics can be so frustrating. However, all in all, we’re in a lot better shape than I think anyone, anywhere, thought we would be just six months ago.
David Kerr is an adjunct professor of political science at Virginia Commonwealth University and has worked on Capitol Hill and for various federal agencies for many years.