If you're looking for reassurances that the economy will bounce back in the near future, you won't find it in the latest report by real estate firm JLL. The prevailing theme in JLL's economic report is uncertainty—uncertainty about the trajectory of COVID-19 as well as government policy reacting to the virus.

The good news is that JLL predicts the recession to be short, though "deep." The bad news is that it will be followed by a long, tough recovery period, dotted with uncertainty.

Recent data indicate there's "massive uncertainty concerning income" that could constrain spending and trigger austerity. For instance, while real personal spending increased quickly in May after the largest drop on record, personal income also declined, after the initial boost from fiscal stimulus in April.

A big question is whether the government will extend the fiscal stimulus. Though the CARES act propped up household incomes, particularly lower-income ones, income growth from other sources remains tepid. "But if the government withdraws or reduces fiscal stimulus when the programs expire over the next month, confusing cause and effect, income growth could once again turn negative," says JLL.

The result could create economic headwinds. Research indicates that lower-income households are spending their stimulus funds, while higher-income households are spending well below pre-pandemic levels. As discretionary businesses that cater to higher-income households stay close during the pandemic (e.g. restaurants and travel), lower-income workers that staff those businesses will be out of work. Until those businesses can reopen safely, government support of lower-income households could be essential.

Compounding the uncertainty is the recent surge of COVID-19 cases after reopening in parts of the country, particularly in California, Texas, and Florida. These three big states could present "another headwind for the economy," notes JLL, because they represent aout 29% of the U.S. economy.

The upshot is that the "markets are trying to digest all this information" in which signals have been mixed. While equity markets in the U.S. have mostly recovered—which JLL attributes to government policy from both the Fed and the federal government as well as general optimism for the future—the Treasury indicates a bleaker picture, with 10-year Treasury yields "hovering just above record-low levels."

How to read the economic tealeaves, at this point, depends on the course of the pandemic and government policy during the next couple of months.

Instant Insights /

The Good News Is the Recession Will Be Short. The Bad News is the Recovery Will Be Long and Tough

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