Walker Webcast: Peter Linneman Sees GDP as “Back to Kind of Normal”

In his sixth quarterly appearance on the Walker Webcast, Peter Linneman cited two wild cards that could disrupt what otherwise has been a strong rebound, both related to COVID-19. One is potential variants and the extent of their resistance to the vaccine; the other is the amount of time it takes for the rest of the world to catch up to the U.S. in terms of vaccinations.

Absent these two factors, the Linneman Associates founder anticipates continuing progress, with most economic indicators having recovered much—but not all—of their pre-pandemic strength and the Federal Reserve not likely to deviate from its present course and tighten money supply. GDP has rebounded to roughly 2019 levels, he said Wednesday. “So we’re back to kind of normal,” Linneman aside.

Even so, Linneman doesn’t see the U.S. economy on a glide path to full recovery just yet. He believes it will continue for a couple more months on the “butterfly path” he previously described. That’s because a roadblock that won’t be cleared until early September is the Biden administration’s extension of federal unemployment benefits, adding $300 per week to state benefits. 

Absent that federal bonus, there would be a “growth spurt” of three million to four million people getting back to work. Linneman believes that spurt will begin to manifest after Sept. 6, when the benefits extension runs out.

“In every downturn, people say, ‘this time, labor will never recover,” Linneman said, adding that labor does manage to recover every time.

Partly because of the mismatch between available jobs and workers who step up to fill them, there’s also a supply-demand gap in production of goods. Demand is “crudely the same” as it was pre-pandemic, but supply is 3% to 30% less, said Linneman.

Pandemic aside, there was also a third potential disruptor cited in Wednesday’s discussion, although Linneman and the webcast’s moderator, Walker & Dunlop CEO Willy Walker, opined that its becoming reality seems unlikely at present. That would be what happened if “tax policy went crazy,” as Linneman put it, with rates such as a 40% tax on capital gains.

History appears to be repeating itself, since the 1918-1920 Spanish Flu pandemic was followed by a boom period, and Linneman thinks we’re in line for “a redo of the Roaring ‘20s.” He cited “huge amounts of cash” in bank accounts, low debt service by historical standards and the prospect of high employment within the next year. That in turn is likely to spur demand for ownership of assets, such as commercial properties.

Linneman likes the near-term investment potential of most asset classes, although he’s more equivocal about hospitality. He said he wouldn’t make an investment bet on office at present, because although he believes that office-using workers will return, “what if I’m wrong?”

The possibility of his being mistaken about office is greater than the prospect of his misjudging other sectors’ potential, Linneman said. In six months, the picture will be clearer, he added.

On-demand replays of the July 7 webcast are available by clicking here and through Walker & Dunlop’s Driven by Insight podcast series.