Following a strong rebound during the third quarter, growth in the U.S. economy began to stagnate at the end of the year as the worsening health crisis surged, resulting in tighter restrictions. The COVID-19 pandemic is still a major force impacting employment, manufacturing production, retail sales, and consumer sentiment across the country, yet the recent rollout of the COVID-19 vaccine distribution is a reason for optimism heading into 2021. However, positive economic growth is not expected until the second quarter, as the spread of COVID-19 continues to spike across the country, with cases, hospitalizations and deaths setting records and many states reinstating business constraints and shutdowns.

December economic indicators were a mixed bag, which should continue to slow the rate of growth in the first quarter. In December, the economy lost 140,000 jobs, breaking a seven-month streak of positive job growth since losing 20+ million jobs in April that pushed the unemployment rate to 14.7%.  The unemployment rate remained unchanged from November at 6.7%. Most of December’s employment losses occurred in leisure and hospitality, private education, and government, yet the industrial sector employment rose in construction (+51,000), transportation and warehousing (+47,000) and manufacturing (+38,000). While these December gains are a positive sign towards recovery, each category remains below February levels.

Consumer sentiment also rose month over month in December, yet remain depressed compared to 2019 levels. According to the University of Michigan Consumer Sentiment Index, the consumer sentiment index reached 80.7 in December – a 3.8 percentage points increase over November, yet much lower than both December of 2019 and pre-pandemic levels of February 2020. The recent contraction in employment, coupled with growing government tensions and the rise in COVID-19 cases, could prove cause for concern in the coming months and prompt a slip in sentiment. However, the 80.7 recorded in December is nearly 5% higher than the November reading, yet much lower than the 99.3 registered at the end of 2019.

The rapid spread of COVID-19 drove Americans to continue to curb their spending for the second consecutive month through November and personal income declined by 1.1%. Consumer spending also dropped in November by 0.4%, or $58.5 billion, with the leading contributors to the increase being spending on clothing and footwear as well as motor vehicles and parts. Overall retail sales are expected to be muted at the end of the year, again, a reflection of pandemic-related challenges. The U.S. Department of Commerce announced that retail sales declined 1.1% from October to November, with some analysts interpreting the decline as an ominous sign for retail sales this holiday season, which were originally expected to grow by almost 1.5%. However, retailers continue to focus on e-commerce fulfillment, which bodes well for warehouse and distribution demand in 2021.

Manufacturing production closed out the year on a high note, growing for the seventh consecutive month, according to the Institute for Supply Chain Management’s Production Manufacturing Index (PMI). December PMI registered 60.7, which is approximately 3% above November’s reading of 57.5. This represents the highest PMI reading for 2020 and December’s PMI is about 8% higher than the 12-month average of 52.5. ISM also reported that 16 of the 18 manufacturing sectors it tracks saw growth in December. The only two industries that contracted were printing and related support activities and nonmetallic mineral products.

While these economic readings were mostly positive, real economic growth isn’t likely until pandemic worries subside and a vaccine is widely available. The outlook for 2021 remains optimistic, yet the increasing tensions between the U.S. and China, and domestic political strains pose concerns for 2021. However, sustained industrial demand should persist as continued growth in e-commerce will fuel the sector in the coming year. The U.S. industrial market was the strongest real estate sector in 2020, and that is not expected to change in 2021.