By LISA KLEIN
The pandemic caused a very short economic downturn unlike any other, and while the globe bounced back quickly, the manufacturing and service sectors lag behind.
Affluent individuals generally benefitted from the COVID-19 economy but are also feeling the fallout in terms of what they are able to buy and do, which is a trend that is expected to continue into 2022.
“No matter how much money they had, they couldn’t spend money on the kind of high-touch, close-contact services that many of them were accustomed to, that had sort of been built into their lives,” said Marci Rossell, chief economist for Leading Real Estate Companies of the World,® during Luxury Portfolio International’s 2021 Affluence Forum.
Highs and lows
In the spring of 2020, entire countries closed down and were forced to continue to restrict their restaurant, travel and hospitality sectors. Manufacturing and shipping, too, had to hold back thanks to COVID-19, and mass layoffs were seen across numerous industries.
Naturally, the global economy was not immune either, but the downturn it saw was different than a usual recession.
“What made it different than other downturns is that it came from outside the economy and moved in rather than inside the economy and moved out,” Ms. Rossell said.
The recessions of the 1970s started within the oil industry, and in 2008 it all started in the housing sector before spilling out into other areas of the economy.
With the coronavirus pandemic, things crashed all at once due to a non-economic factor.
Also, in normal circumstances, an economic downturn typically leads to declines in personal wealth.
“This time around, the value of folks’ portfolios and their homes might have dipped dramatically in a three-month period of time, but boy, everything just snapped back so very quickly,” Ms. Rossell said.
After the initial shock of the pandemic, the value of stocks, bonds and real estate – the main vessels for personal wealth – actually increased dramatically.
According to Ms. Rossell the stock market alone is up 30 percent worldwide, and from pre-pandemic levels to boot.
“Wealth increased almost $28 trillion globally last year,” she said.
“To put that into perspective, the U.S. economy is a $22 trillion economy,” she said. “So in terms of wealth, it was almost as if you added to the globe an entire U.S. economy, plus some.”
Supply and demand
Fast gains in wealth ushered in big increases in demand throughout the past year, with pandemic-affected industries struggling to keep up.
“2021 was a year where the global economy really snapped back in terms of economic activity, and growth picked up,” Ms. Rossell said. “Many sectors sort of exploded in terms of how quickly they recovered.”
Somehow, though, despite the initial pandemic unemployment rate, there is a shortage now in the labor pool for many sectors, caused by the unusual nature of the 2020 downturn.
While any economic downturn will lead to job losses, normally that happens over a long period of time. In 2020, people were instantly severed from their employer and often the place they lived as a result.
“Once you cut that for them, they’re not going back to the same job, they’re not going back to the same town, they’re not going back to the same way that they lived before,” Ms. Rossell said. “And so this is causing real friction in labor markets today.”
In addition, Gen Z is much smaller that the millennial generation, and every year there are 400,000 fewer 18-year-olds entering the labor pool in the United States alone.
High demand plus a workforce shortage have led to sticker shock for many, with goods and services price hikes, real estate prices that went through the roof and a whopping 5 percent inflation.
“Those inflation numbers are something we haven’t seen in decades,” Ms. Rossell said. “And it’s making folks worry: is the stock market going to crash, is there a housing bubble?”
The economist does not believe 2022 will see any burst bubbles, especially when it comes to the housing market.
Throughout the pandemic, people purchased larger and larger homes because they needed the space for working, schooling and entertaining. But pandemic or not, millennials have been buying those homes anyways, as they are moving on into a new family-oriented phase of life.
Plus, homebuyers can afford what they are purchasing this time around, many making cash offers for property recently.
There will, however, be some things that money just cannot buy again yet.
“Factories worldwide are churning out goods trying to get them to clients,” Ms. Rossell said. “But you don’t have truck drivers, you don’t have dock staff, to get them from the ships to our homes, our stores, all those things because of the labor market issues.”
Labor shortages in the travel, leisure and entertainment industries have also soured the experience, especially in the luxury market where consumers are used to a certain quality of service.
“If you’re a high-net-worth person who has plenty of income, plenty of wealth – it’s piling up in your stock portfolio, it’s piling up in the value of your home,” Ms. Rossell said. “You want to spend money on things and in some instances you can’t.”
While she advised that these issues are only temporary, that may not be enough for some.
“I think 2022 could be sort of a year of frustration,” Ms. Rossell said.
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