People are going to spend up to 10% less in cities because of working from home, study says

New York outdoor dining
People dine at an outdoor Soho restaurant on March 21, 2021 in New York City.

  • Spending in major metro areas will drop by 5% to 10% because of working from home, UChicago researchers said.
  • A cutback in commuting will hit urban spending on food, shopping, and entertainment, they added.
  • This could lead to tax raises or job cuts in cities that are just recovering from the COVID-19 recession.
  • See more stories on Insider’s business page.

The post-pandemic economy will look different from the one seen in February 2020. In a word, it will be emptier. Gone are the days of an office-based 9-to-5; instead, workplaces are rolling out plans for hybrid telecommuting and even fully remote work.

But where work-from-home will benefit Americans in reducing commute times and granting extra flexibility, nobody knows just how much it will hit the urban economies that used to support office workers in the before times. University of Chicago researchers have an idea, or at least an estimate.

The post-pandemic shift to work-from-home setups will decrease spending in major metropolitan areas by 5% to 10%, researchers Jose Maria Barrero, Nicholas Bloom, and Steven Davis said in a working paper published on Wednesday. The shortfall could even reach 13% in densely populated areas like Manhattan, the team added, citing their own survey data.

“As these workers cut back on commuting, they will spend less on food, shopping, personal services, and entertainment near workplaces clustered in city centers,” the economists said. “Central business districts will see considerably larger spending drops relative to the pre-pandemic levels.”

Such a spending drop would present a major challenge for cities looking to recover from the pandemic’s economic fallout. Consumer spending counts for roughly 70% of economic activity and is a particularly important economic driver in areas that faced strict lockdowns throughout the health crisis.

Retail sales – a popular gauge of Americans’ spending habits – surged to record highs last month as a new wave of stimulus checks and the relaxing of some economic restrictions boosted activity. The measure is expected to climb even higher in April, but as stimulus dries up, Americans’ spending will settle into a new normal.

Cities have little to counter a permanent drop in metro-area spending. Where the federal government can spend at a persistent and growing deficit, state and local authorities have to balance their budgets. The drop in spending forecasted by the team of economists could force cities to either lift taxes or cut spending and risk more economic harm.

What is challenging for urban economies could be a benefit to how good people are at their jobs. Widespread telecommuting is projected to lift productivity by 4.8%, according to the study. Half of those gains reflect savings in diminished commuting times.

Still, those likely to benefit from more remote work aren’t the ones who need the boost. Employer plans suggest that the extent of telecommuting will rise with education and earnings, the team said. The benefits of persistent work-from-home policies “will be broadly felt but flow mainly to the better educated and highly paid,” they added.

With economic data and experts warning of an uneven economic recovery, such disparities would only exacerbate the hiring and income gaps that plagued the country before the COVID-19 recession.

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Spending at US retailers rockets 9.8% higher as stimulus supercharges reopening

Hollywood
  • US retail sales surged 9.8% in March to a record $619.1 billion, the Census Bureau said Thursday.
  • The leap nearly doubles the median economist estimate of a 5.8% gain from a Bloomberg survey.
  • Sales were bolstered by warmer weather and $1,400 checks included in Democrats’ stimulus plan.
  • See more stories on Insider’s business page.

Warmer weather, reopening, and stimulus support converged in March to drive the strongest month of retail spending the US has ever seen.

Retail sales increased 9.8% last month to a record $619.1 billion, according to Census Bureau data published Thursday. The leap nearly doubles the median economist estimate of a 5.8% gain from economists surveyed by Bloomberg. February’s decline was revised higher to a 2.7% contraction.

The March reading sits 27.7% higher than that seen exactly one year ago. Sales dipped in March 2020 and hit their pandemic-era floor in April as initial lockdowns and fears of COVID-19 kept Americans from spending at physical stores.

Retail sales have been a key indicator for economic activity and became even more relevant amid the virus-induced restrictions. Such spending counts for roughly 70% of economic activity, and the rebound seen after the winter virus wave suggests the country can soon return to pre-pandemic strength.

Stimulus boost, redux

Last month’s upswing mirror that seen at the start of the year. Retail sales shot 7.6% higher in January as Americans deployed direct payments included in President Donald Trump’s $900 billion stimulus package. The climb snapped a three-month streak of declines and handily beat economist forecasts.

It appears the $1.9 trillion stimulus measure approved by President Joe Biden in March achieved a similar effect.

“With fresh stimulus checks in hand, consumers took advantage of warmer weather and increased vaccinations to splurge at car dealerships, shopping malls, restaurants, and home improvement stores,” Gregory Daco, chief US economist at Oxford Economics, said, adding the March reading only marks the beginning of the “consumer boom.”

Oxford Economics expects private spending to grow 8.4% through 2021 on the back of widespread vaccination and reopening. That would be the fastest growth rate since 1946.

Early data suggests Americans didn’t even use the full payments to drive the March increase. Stimulus check recipients only spent about 25% of the payments, according to researchers at the Federal Reserve Bank of New York. That’s less than the share spent from the previous two rounds of stimulus checks. Conversely, larger portions were diverted to savings.

The data is clear: The economy is recovering

The retail sales report caps a month that’s likely to mark a turnaround for the US economy. For the first time since the pandemic began, practically every economic release pointed to a broad and fast-paced recovery.

Consumer sentiment leaped to one-year highs as the vaccination rate improved and nicer weather allowed for a return to some pre-pandemic activities. Jobless claims tumbled to pandemic-era lows, and fell further still last week. The manufacturing sector continued to grow at a healthy pace, and the service businesses saw activity rebound after struggling through the winter.

Perhaps the most notable report came on April 2 from the Bureau of Labor Statistics. The agency reported a 916,000-payroll gain in March, beating estimates and marking the strongest month of job growth since August. Readings for January and February were both revised higher, and the headline unemployment rate fell to 6% from 6.2%.

To be sure, there’s still plenty of progress to make before the country is fully in the clear. The government’s monthly jobs report showed the economy is still down some 8.4 million payrolls from before the health crisis. Unofficial estimates that include misclassification and workers who dropped out of the labor force since February 2020 place that sum closer to 14 million. And while jobless claims continue to decline, they still sit at levels twice as high as those seen before the pandemic.

The Thursday spending data is an encouraging sign. Increased spending lifts businesses’ demand for workers and, in turn, accelerates hiring. The pace of vaccination continues to improve, and state and local governments are slowly relaxing their lockdown measures.

Coronavirus strains still present some risks, but the economy seems to be at an “inflection point,” Federal Reserve Chair Jerome Powell said Wednesday. Americans should keep socially distancing and masking up to ensure the country can effectively curb the virus’s spread, he added.

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Dow drops 200 points as traders mull Biden’s stimulus plan and soft retail-sales data

trader upset
  • US stocks sank on Friday as investors digested President-elect Joe Biden’s stimulus plan and a December slump in retail sales.
  • Biden rolled out a $1.9 trillion relief proposal on Thursday that includes $1,400 direct payments, state and local government aid, and expanded unemployment benefits.
  • While Democrats’ soft Senate majority increases the odds of a deal being passed, Republican opposition could strip the bill of some elements or push for higher taxes to offset its cost.
  • Retail sales shrank 0.7% in December as COVID-19 lockdowns cut into holiday-season spending, according to Census Bureau data published Friday. Economists expected sales to hold flat from November.
  • Watch major indexes update live here.

US equities fell on Friday amid a drop in retail sales and concerns that President-elect Joe Biden’s stimulus proposal could lift taxes.

Biden unveiled a $1.9 trillion fiscal relief plan on Thursday that includes $1,400 direct payments, expanded federal unemployment benefits, and state and local government aid.¬†Democrats’ victories in Georgia runoff elections greatly improve the party’s chances at passing such a sweeping stimulus measure.

Yet GOP opposition could strip the bill of some components before its passage. Lawmakers could also call for higher taxes to justify the legislation’s hefty price tag, a move that would surely rankle investors hoping for President Donald Trump’s low tax rates to remain in place.

Here’s where US indexes stood shortly after the 9:30 a.m. ET open on Friday:

Read more: Global X’s lithium and battery ETF returned 126% in 2020 as electric vehicle-driven demand surged. One of the firm’s analysts shared 4 stocks he sees ‘leading the rise’ in the industry going forward.

“The very health of our nation is at stake,” Biden said in a speech revealing the plan, adding that failure to pass a large-scale relief package “will cost us dearly.”

Stocks extended losses after retail sales data showed a third-straight monthly decline to close out last year. Spending at US retailers contracted 0.7% in December as COVID-19 restrictions offset holiday-season sales, according to Census Bureau data published Friday. Economists surveyed by Bloomberg expected sales to stay flat from the month prior.

November’s reading was revised lower to a 1.4% contraction, suggesting surging coronavirus cases and lockdown measures swiftly cut into a V-shaped rebound in consumer spending.

“This likely is the nadir for retail sales, as the late-December stimulus and the pending stimulus under the Biden administration will boost both bank accounts and consumers’ spirits,” Robert Frick, corporate economist at Navy Federal Credit Union, said.

Read more: ‘I don’t believe that we’ve really left the recession yet’: Bond king Jeff Gundlach lays out the 2 risks that investors should watch nearly a year into the pandemic – and shares the 4 components of a balanced, winning portfolio

Fourth-quarter earnings kicked off with JPMorgan beating revenue and profit expectations. The bank reported a 42% jump in net income, bolstered by the release of $2.9 billion in loan-loss reserves.

Citigroup reported less-than-stellar results Friday morning. While the bank’s revenue landed above estimates, weaker-than-expected performance in its fixed-income division contributed to a miss on quarterly earnings. The business reported revenue of $3.09 billion over the period, below the consensus expectation of $3.2 billion.

Bitcoin dropped below $38,000 as the cryptocurrency’s volatile trading week came to a close. The token climbed back above $40,000 on Thursday but failed to retake the record highs seen one week ago.

Spot gold slid 0.5%, to $1,836.64 per ounce, at intraday lows. The US dollar strengthened against the majority of Group-of-10 currency peers and Treasury yields declined. 

Oil prices sank as the stronger dollar cut into its recent climb. West Texas Intermediate crude fell as much as 1.7%, to $52.68 per barrel. Brent crude, oil’s international benchmark, dropped 1.9%, to $55.37 per barrel, at intraday lows.

Now read more markets coverage from Markets Insider and Business Insider:

Cathie Wood’s ARK Invest runs 5 active ETFs that more than doubled in 2020. She and her analysts share their 2021 outlooks on the economy, bitcoin, and Tesla.

Monetary stimulus will remain in place well into economic recovery, Fed Chair Powell says

US consumer comfort tumbles to lowest point since July as COVID-19 surge cuts further into recovery optimism

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