Chicago Fed Insights

Economic Outlook Symposium, Part 2: The Pandemic Economy Going Forward

December 21, 2020

The Chicago Fed hosted the 34th Annual Economic Outlook Symposium (EOS) virtually on December 4. This blog post summarizes the two afternoon panels. First, representatives of auto, steel, and oil discussed their respective industry outlooks. And second, panelists focused on the impact of Covid-19 on their economic sectors: transportation, commercial real estate, state governments, and nonprofits. A previous post summarized the morning sessions, in which economists and senior executives provided their outlooks for 2021 and beyond and the monetary policy environment.

Thomas Klier, senior economist and research advisor, Federal Reserve Bank of Chicago, kicked off the afternoon session by introducing representatives of major industrial sectors: autos, oil, and steel. What was clear at the outset is how closely industries are integrated with each other.


Elaine Buckberg, chief economist, General Motors, shared mixed messages from the auto industry. While year-to-date sales are 17% below 2019’s pace, sales have rebounded from their April lows. Yet, fleet sales remain anemic. Another glass half-full, half-empty story is that while retail activity has substantially recovered, the auto rental market remains at low levels. This is overwhelmingly due to the decline in airport rentals, Buckberg said.

Pandemic-induced demand has largely driven the auto sales recovery, though low auto loan interest rates are also a factor. Demand seems to be based on drivers seeing private vehicles as a safe space for both local and long-distance trips, said Buckberg. In addition, some households are likely using savings from foregone vacations, entertainment, and restaurant meals toward a new vehicle, she said. And city residents may have increased interest in owning a vehicle as some seek to move to the suburbs and others want to escape the city on weekends.

The sharp rebound in housing permits is a positive signal for overall auto demand, according to Buckberg. “Higher home construction activity along with strong demand for boats and RVs are particularly favorable for heavy-duty pickups,” she said.

On the cautionary side, North American inventory remains very lean due to March to May plant shutdowns, Buckberg said. Because of increased demand, dealer incentives are falling, and transaction prices are rising.


The oil market’s outlook for 2021 is a lot like the outlook for the overall economy, said Mark Finley, fellow, Rice University’s Baker Institute. “It’s getting better but still a long way from fully recovered,” said Finley. OPEC, and the broader group including Russia, which is actively and aggressively managing production, bears watching, he added.

The pandemic and policy responses to it caused general economic activity to collapse, but especially the transport sector, Finley noted, where oil demand is focused. In April, oil production fell by 20 million barrels a day, or about 20%, the biggest drop ever recorded.

Then there was a brief price war between key producers, most notably Saudi Arabia and Russia, which resulted in U.S. prices (the U.S. benchmark contract WTI) famously, albeit briefly, falling below zero, Finley said. But then, he added, rebalancing began, and the oil industry has slowly begun to improve. Prices have reached new post-pandemic highs, rising with positive news on the availability of a Covid-19 vaccine. Inventories remain well above normal levels, Finley said.

Despite rising prices, Finley said he wouldn’t be surprised to see some renewed weakness in oil prices “if the virus bites hard in winter.” Beyond that, the outlook appears better; supply and demand look supportive.

The future path to recovery is driven by three issues, said Finley. The first is oil demand, which is largely back to normal around the world but not here, where demand is down 10% versus 5% to 6% globally. Questions remain about consumer habits: Will less commuting and travel continue? Or will people drive more? Will a green stimulus lead to more electric vehicles?

Second, OPEC’s moves cause some uncertainty, said Finley. While compliance with the most recent production agreements currently exists, some disagreements are surfacing among OPEC countries and other producers.

Third, although the U.S. is oil self-sufficient and became the biggest producer in the world for the first time in 70 years, the drilling rig count fell by 75%. It has begun to recover, Finley said, but it is still only one-third of pre-Covid 19 levels and well below what’s needed to stabilize production.

Finley concluded that U.S. production will remain on a year-on-year decline in 2021, but worldwide demand is expected to return to normal in 2022.


Demand for steel is likely to evolve in the near term, said Tim Gill, chief economist, American Iron and Steel Institute. One of the key measures of the health of the industry is weekly capacity utilization (WCU) in raw steel-making. Data show steel took quite a beating in spring, when the WCU fell about 30% over a period of six or seven weeks. Since early May, Gill said, there has been slow but remarkably steady improvement: from 50% in May to over 70% recently. A similar pattern exists across most steel indicators, such as raw steel production, shipment of finished products, and demand for those finished products. It has been a “painstakingly slow recovery” since spring, said Gill, and “there’s still a big hole to dig out of.” A small silver lining is that the domestic industry has gained a bit of market share; however, concern remains about global overcapacity.

Looking ahead, there has been improved demand since April, but steel is still below pre-pandemic levels. After a 15% to 20% decline this year, Gill expects the 10% increase between May and September to carry into 2021. But “it could be a bumpy road until the pandemic is better under control,” perhaps by the middle of next year, Gill said.

Increased steel production relies on the health of other industries. Auto has bounced back quite quickly, Gill said, and that’s helped the steel industry. Steel for construction is holding up, but that sector takes longer to recover once the broader economy turns the corner, said Gill. Construction accounts for about 40% of steel industry shipments; that’s a mixed bag in terms of end markets, Gill said.

Panel 2: Sectors hard hit by Covid-19

The second panel, moderated by Chicago Fed Vice President and Detroit Regional Executive Rick Mattoon, highlighted four areas of the economy particularly hard hit by Covid-19: transportation, state governments, commercial real estate, and the nonprofit sector. While the pandemic has negatively affected these sectors overall, significant variation can be seen in some areas, particularly in transportation and commercial real estate.


Transportation is one of hardest hit sectors, but also one of most resilient, said Tom Kotarac, vice president, transportation and infrastructure, Civic Committee, Commercial Club of Chicago. Passenger-carrying modes have suffered huge devastation, Kotarac said, essentially being obliterated. For example, train ridership in Chicago is down 85%, 97% from the suburbs. Bus ridership is also down 50% to 60%, less than trains because many essential workers use bus transit.

Single-occupancy vehicle traffic was down 50% in March and April, but commercial truck traffic dropped only about 20%. By May that sector was back to pre-Covid-19 traffic, said Kotarac. Single-unit trucks, used for small deliveries are up 15% to 20%, he added.

On the freight side, it’s a different picture: Freight rail is up 5% over 2019. Passenger air is at 60% of volume, but air freight is booming. The supply chain and distribution challenges involved with the Covid-19 vaccines are huge, Kotarac said, and federal government support will be necessary for many modes of transportation to recover.

State governments

The next speaker, Shelby Kerns, executive director, National Association of State Budget Officers (NASBO), noted that states entered fiscal year 2020 with significant optimism, but the pandemic changed that outlook.

Last year governors prepared budgets that were very positive, anticipating better revenue growth, said Kerns, and predictions were exceeded in 46 states. States saw sizable budget surpluses and grew rainy day funds to 7.3%. In 2020, states have been using those savings to close their budget gap.

In fiscal year 2020, state revenue declined 1% for the first time since the Great Recession, and states expect greater revenue declines ahead. While state income tax returns reflected a strong 2019, 2021 will reflect the downturn in 2020, Kerns said.

At the same time, she noted, states face increased spending demands as a result of the pandemic, such as Medicaid, adjustments for schools, and temporary medical facilities.

To sum up, said Kerns, states see unevenness and uncertainty, which varies from state to state. For example, unemployment levels range from 3% to over 14%. Those states that rely on energy and tourism have been hit particularly hard, Kerns said. But then a handful of states are experiencing revenue growth, year over year, Kerns added. It’s hard to predict what’s next, as states are unsure of forthcoming federal aid, how people will react to the coming Covid-19 vaccine, and other issues.

Commercial real estate

Rick Lackey, chief executive officer, REAL Professionals Network, said the uncertainty surrounding the path of the pandemic is having a significant impact on the commercial real estate sector, which is a lagging economic indicator. Some further decline may be seen when rent relief wears off. No one wants to make a commercial real estate decision in this environment, he said.

Rent declines for commercial space are as low as 7% on a national level to a high of 30%. The industrial sector is the least affected, followed by multifamily dwellings, then office, retail, and hospitality. The Midwest is within plus or minus 10% of the national numbers, Lackey said. Some property sectors and markets are doing well, largely in the Sun Belt, but Lackey said he doesn’t expect the overall commercial real estate market to improve until 2022:Q1.

Nonprofit sector

The final speaker of this panel was Robin Newberger, senior business economist, Community Development and Policy Studies, Federal Reserve Bank of Chicago. Newberger shared data from many surveys that show how nonprofits generally have been negatively impacted by Covid-19. Many are reducing staff and losing revenue at the same time there is increased demand for services. Some nonprofits have cut half their staff. From October 2019 to February 2020, 900,000 nonprofit jobs were lost. The biggest drop was in culture and the arts, about 34%; community assistance nonprofits lost about 10% of their workforce.

About 60% of nonprofits have destabilizing revenue positions, Newberger reported. All forms of revenue have decreased, and at the same time, many see an increased demand for services.

Newberger noted the importance of nonprofits in the overall economy. With approximately 1.5 million nonprofits in the U.S., employment in the sector measures about 12 million, or about 10% of the private workforce. Nonprofits are third behind retail and accommodation and food services.

Human services organizations are most affected by the pandemic and face the greatest challenges, as they attempt to serve lower-income households that are having trouble paying expenses. Newberger noted the 50% loss of employment income since the start of the pandemic among those who earn less than $50,000.

There is also a concern that we are heading toward a housing crisis, said Newberger, with 20% of households of income less than $50,000 behind on rent. The pandemic may end up lowering the availability of affordable housing. Even if landlords can get mortgage forbearance, they will still have to cover maintenance and taxes. If the rent money doesn’t come in, that can lead to property deterioration and foreclosures or abandonment, Newberger said.

Going forward, Newberger sees a dire situation for nonprofits, adding that 10% to 40% may close their doors for lack of funds. About half the nonprofits surveyed have had a significant disruption in their operations. In an October 2020 survey, 56% of entities that serve low- to moderate-income communities said it would take more than a year for the people and communities they serve to return to pre-Covid-19 conditions.

At the end of the day, those speaking to the current economic issues facing major industrial, business, and nonprofit sectors made it clear that the U.S. economy faces serious challenges, sparked largely by the Covid-19 pandemic. At the same time, these speakers expressed some optimism. They said they expect to see a slow uptick in economic activity overall in 2021, but believe it will likely be 2022 before economic life returns to what we perceive as normal.

The views expressed in this post are our own and do not reflect those of the Federal Reserve Bank of Chicago or the Federal Reserve System.

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