Monday Morning Quarterback (12/21/2020)

December 21, 2020

“There is Light at the End of the Tunnel”

Coronavirus cases set another daily record last Thursday, reaching over 250,000. Additionally, U.S. COVID related deaths rose again last week, claiming more than 18,000 lives. While the pandemic is expected to worsen during the holiday season, the White House’s Chief Science Advisor Moncef Slaoui reminded citizens yesterday, “There is light at the end of the tunnel.”

Chart of New Coronavirus Cases Reported per Day

Source: The Washington Post
Chart of New Reported Coronavirus Deaths per Day
Source: The Washington Post

7.9 Million Doses to be Shipped This Week

On Friday, the FDA granted emergency authorization to Moderna’s Coronavirus vaccine, one week after the administration gave emergency authorization to Pfizer. Unlike Pfizer’s vaccine, Moderna’s shot can be stored at normal freezer temperatures (-25°C/-13°F and -15°C/5°F), while Pfizer’s vaccine must be stored in an ultracold environment (between -80°C/-112°F and 60°C/-76°F). These specifications mean that Moderna’s vaccine is easier to ship, particularly to rural hospitals that may not have the capability to store the Pfizer shots. Approximately 7.9 million doses of the Pfizer and Moderna vaccines are to be shipped out this week.

November Retail Sales Fell 1.1%

On Wednesday (December 16), the U.S. Census Bureau reported that retail sales fell a seasonally adjusted 110 bps month-over-month (m/m) in November, but rose 410 bps above November 2019. Additionally, October sales were down from +30 bps to -10 bps m/m. Sales fell for department stores, vehicle dealerships, and restaurants in November, while sales grew for grocery stores, building materials, and e-commerce. The decline in retail sales during October and November signaled the end of several months of increased retail spending.

Chart of Total Retail and Food-Service Sales, through November

Source: Commerce Department and The Wall Street Journal

Near-Zero Until 2024

Last week, the Fed provided updated projections for monetary policy and GDP growth. The projections reiterated that most officials (12 of 17) believe that the federal funds rate will remain near zero until 2024. The central bank also provided more detail regarding asset purchases. With the benchmark rate near zero, quantitative easing has become the primary tool with which the bank decreases or increases monetary stimulus. Since June, the Federal Reserve has continued to purchase $40 billion in mortgage bonds and $80 billion in Treasury’s, monthly. Following the Wednesday meeting, the central bank announced its intentions to continue bolstering its asset holdings at the current pace “until substantial progress is made toward the Committee’s maximum employment and price stability goals.”

Chart of Projected End-of-year Target RateSource: Federal Reserve and The Wall Street Journal     

Unemployment & GDP Projections:

The resurgence of future economic activity depends heavily on the course of the pandemic. Despite the acceleration of the virus’s spread, Federal Reserve Board members raised their expectation for 2020 Real GDP growth to -2.4% from the prior estimate of -3.7%. Additionally, unemployment estimates improved from 7.6% to 6.7% in 2020 and from 5.5% to 5.0% in 2021. While the economic recovery has slowed and the pandemic worsens, the recent success of multiple vaccines has the Fed viewing future GDP growth and unemployment more positively.

Street Rates Continue to Improve:

On Thursday, Yardi released its national, monthly self-storage report for November. During the month, street rates continued to improve across the nation, while development activity “remained unaffected” by the pandemic. Non-CC unit rates rose by 1.7% y/y, but CC units stayed put. However, climate-controlled (CC) units’ flat performance shows improvement over the first three quarters of 2020. In November, annual street rate performance for 10×10 Non-CC units was positive in 81% of top markets tracked by Yardi.

Chart of November 2020 Year-over-Year Rent Change for 20'x10' UnitsSource: The Washington Post

Supply Pipeline Still Strong:

Self-storage facilities in the planning stages or under construction comprised 8.3% of existing inventory, a 10 bps gain from October’s supply. Although 53 self-storage projects were abandoned over the last three months, the new supply pipeline continued to look stable.

Chart of Under Construction & Planned Percent of Existing Inventory
Source: The Washington Post

$900 Billion Fiscal Stimulus Package Finalized:

On Sunday afternoon, Senate Minority Leader Charles Schumer and Senate Majority Leader Mitch McConnell took to the Senate floor to announce that Democrats and Republicans have reached an agreement for a bipartisan stimulus deal, and it’s ready to be “quickly approved.” The approximate $900 billion COVID-relief bill includes $600 in direct relief payments to Americans, enhanced unemployment insurance of up to $300 a week, and $330 billion in small-business aid. While there is broad consensus on unemployment benefits and stimulus checks, nothing is set in stone until the bill’s text is released, hopefully early this week.