Last week the Labor Department announced that the US economy added 273,000 jobs in February—a number that surpassed the 175,000 jobs economists surveyed by Dow Jones had expected. Ordinarily the report would have been met with satisfaction from the business community, a sign that the long-standing economic expansion was continuing. But these are no ordinary days. Economic activity in February provides little insight into how the economy will progress in the near-term amid the uncertainty of the coronavirus. The stock market met the news with indifference on Friday, continuing its week-long rout.
Instead, talk is growing that chances for a recession in the near-term are increasing. Oxford Economics, for example, is now predicting a 35% chance of a recession occurring in the US this year, up from an estimate of 25% it made in early January, according to a Reutersreport.
Another indication came from Pacific Investment Management Co (PIMCO), which told clients on Sunday the coronavirus outbreak is likely to cause a technical recession, or two consecutive quarters of negative growth, in the US and the euro zone during the first half of 2020, according to another Reuters report.
Others posit that the recession will be more painful because of its suddenness. “Because it’s happening so quickly, we could get more of a shock factor,” Michelle Meyer, head of US economics at BofA Securities, told The New York Times. “The speed of the shock is important and could result in a downturn feeding on itself more acutely.”
How the commercial real estate industry will fare in a coronavirus-led downturn remains to be seen. “It really depends on how bad the coronavirus gets,” CoStar consultant Joey Biasi tells GlobeSt.com. “If it is relatively short-lived it won’t have much of an impact. But if it drags down the economy we could see some knock-on effects.”
Some sectors are more vulnerable than others, Biasi continues, with hotels particularly in the cross-hairs. Pebblebrook Hotel Trust, to name one example, announced this morning that it has withdrawn its outlook for the first quarter and the year due to the large number of recent corporate group cancellations and corporate travel policy restrictions related to concerns about the coronavirus, which have led to material declines in net bookings year over year.
“We have seen a considerable rise in corporate group- and convention-related cancellations due to concerns surrounding COVID-19, and therefore, we are unlikely to achieve our first quarter and full-year 2020 outlook,” said CEO Jon E. Bortz in prepared remarks. “These cancellations, which have dramatically escalated in just the last 10 days, are largely for business previously on the books for March, April and May of 2020.”