Savannah Chamber

12 6 GDP growth will sustain job creation, with the pace of job growth accelerating significantly once a vaccine is widely available. It will help that venture capital – which fuels job creation – will be more available in 2021 than in 2020. Less positively, foreign direct investment will remain at very depressed levels throughout 2021. That is a major negative for the job outlook, especially for gateway metropolitan areas that have come to depend on foreign direct investment. Assuming that labor force participation does not rise quickly, net job creation will be fast enough to bring down the unemployment rate substantially, from its peak of 14.7 percent to about 7 percent in late 2021. The unemployment rate will be high throughout 2021, but it will be moving in the right direction. The high unemployment rate will vent some of the pressures on wages and limit inflation. With the unemployment rate at elevated levels throughout 2021, the balance of power will favor buyers of labor over sellers of labor, which is a major reversal of the situation prior to COVID-19 when workers had the upper hand. In 2021, it may still be difficult to hire workers that have very specialized training or educational requirements, however. For example, there will be shortages of some types of construction workers and truck drivers. In 2021, wages and benefits will rise by about 1 percent. Compensation per hour therefore will increase very modestly. Health insurance costs will be the primary force behind benefit cost increases. Faster productivity growth coupled with slow wage growth will cause unit labor costs to drop by -0.5 percent in 2021. That will make US firms more competitive. Another implication of the drop in unit labor costs is that inflation should be well contained, which provides the Federal Reserve the latitude to keep short-term policy interest rates at zero and expand the size of its balance sheet. Housing Home sales and homebuilding will be very important drivers of US GDP growth in 2021. That will be mostly due to record low mortgage rates and cyclical factors, but demographic trends also will support the housing industry in 2021. For example, Millennials are reaching the age where they will buy homes in much larger numbers, especially in Southern and Western states where overall population growth is relatively strong. Telecommuting and social distancing make the home more important to many people. Due to COVID-19 many older homeowners are likely to stay in their single-family homes longer than originally planned, postponing their moves from single family housing to retirement communities or assisted living facilities. The postponement of moves by elderly homeowners to multiunit housing arrangements means fewer existing single-family homes will be on the market to satisfy buyers' needs. The upshot of these considerations is that the number of single-family home starts for new construction will increase by about 25 percent in 2021. Existing single-family home prices rose substantially in 2013-20. Existing home prices will continue to rise, but at a more moderate rate – about 2.5 percent in 2021. As the record of home price appreciation lengthens, potential homebuyers who have been waiting on the sidelines are opting to become homeowners. Many investors pulled the trigger on home purchases in late 2011 or in 2012, but people who buy homes to live in them did so in increasing numbers in 2013-20. In 2021, the share of homes sold to people who live in them will rise and the share sold to investors will decline. Going forward, the performance of the housing market will depend on the performance of the labor market, changes in mortgage rates, and credit conditions. New jobs and bigger paychecks – plus appreciating home values – will give more people the wherewithal and the confidence to buy homes, sustaining the housing market's growth in 2021 and beyond. Prevailing mortgage rates are a tremendous bargain, and rates are expected to remain close to historically low levels through 2023. Rock bottom mortgage rates will be the strongest driver of the housing recovery. Lending standards will ease for homebuyers making home mortgages easier to obtain in 2021 than in 2020. Lending standards for new home construction and new residential developments will be good. Credit lines and money to builders will be more available due to reduced concerns about a double-dip recession, especially in the second half of the year. Supply constraints – the scarcity of developed lots and a shortage of lumber and skilled construction tradespeople – will continue to be a factor slowing recovery of the homebuilding industry. Financing for lot development will be more available in 2021 than in recent years, reflecting good prospects for new home sales. Trade tensions, visa restrictions, past appreciation of the US dollar, and weak foreign economies will reduce the

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