Thank you to the following industry leaders who contributed to this report.

Rose Oswald Poels, Wisconsin Bankers Association
Eric Borgerding, Wisconsin Hospital Association
Robb Kahl, Construction Business Group
Kim Pokorny, Wisconsin Farm Bureau Federation
Brandon Scholz, Wisconsin Grocers Association
Kurt Bauer, Wisconsin Manufacturers & Commerce
Tom Still, Wisconsin Technology Council
Michael Theo, Wisconsin REALTORS Association


“Moving into the new year, banks will retain strong balance sheets and profitability, although it will continue to be measured until the health crisis recedes.”

Bankers Played a Huge Role in Stabilizing Wisconsin’s Economy

By Rose Oswald Poels, President and CEO
Wisconsin Bankers Association

It has almost become cliché to say that this past year was unprecedented. No one obviously predicted the arrival of the COVID-19 pandemic, and no one correctly predicted the breadth or length of its impact. The ramifications of this health crisis on our economy were great this past year, and I expect this to unfortunately linger well into 2021.

Bankers are always focused on helping their customers, but throughout last year staff were stretched very thin to accomplish the workload while balancing their own COVID-related challenges. The persistent low interest rate environment we experienced at the beginning of last year meant mortgage lenders and operational staff were already very busy. As low interest rates continued throughout the year, there was no substantial decrease in demand. Add to that the Paycheck Protection Program (PPP) and it quickly became clear that bankers were on the economic frontlines of this crisis. Indeed, net loans and leases grew by over 10% from the prior year through the third quarter, with commercial loans growing by over 41%.

In the two rounds of PPP stimulus this past year, Wisconsin bankers across the state proactively engaged to help their customers by providing nearly $10 billion in funding to almost 90,000 businesses. The volume of loans made in this four-month span of time exceeded what most banks do in one year’s time. At the time of this writing, a third round of new PPP stimulus has not yet passed, and if legislation does not pass during the lame duck session it is expected to pass early in the 117th Congress. Since helping their customers and communities is in the DNA of bankers, the industry will once again step up to help those businesses in need by participating in this next round of PPP.

It is clear that the stimulus money provided this past year was critically needed by businesses and individuals to help get them through the shutdowns and related challenges of the pandemic. The unique lens that gives bankers insight to all sectors of the economy allowed them to act quickly to defer loans to help their customers financially weather what we thought was a short-term health crisis. Most of these same customers received PPP and other stimulus money to help them keep employees paid and their businesses open. With the money running out and the health crisis continuing, it is causing undue financial stress on certain business sectors that will have long-term implications for some while others will have no choice but to shut down. We started to see this happening in the fourth quarter of last year.

As a result, bankers were already preparing last year in anticipation of a higher than normal number of loan defaults. The third quarter FDIC data shows that Wisconsin banks increased their allocation to loan loss reserve accounts by 31% year over year. As the stimulus money starts to run out causing businesses and individuals to have more difficulty paying their loans, the third quarter also saw noncurrent loans and leases increase by 23% year over year. In the first six months of 2021, I expect there will continue to be higher than normal loan defaults which will cause strain on bank’s balance sheets, particularly if a bank did not put enough money into its reserve allocation.

Strain did start to appear last year, however, in the margin of profitability of banks where Wisconsin banks’ net interest margin only grew by 3.27% through the third quarter of 2020 compared to 3.51% in third quarter 2019. Despite the roller coaster ride we experienced across the business sector last year, Wisconsin banks continued to be financially stable and profitable through the third quarter of 2020. I expect the industry will end the year strong as well. Moving into the new year, banks will retain strong balance sheets and profitability, although it will continue to be measured until the health crisis recedes.

Founded in 1892, the Wisconsin Bankers Association is the state’s largest financial industry trade association, representing 215 commercial banks and savings institutions, their nearly 2,300 branch offices and 22,000 employees.

“Since its launch in October, the “Stop the COVID Spread!” coalition has grown to more than 125 Wisconsin organizations and aired five separate messaging campaigns.”

Wisconsin’s Hospitals Will Emerge Stronger from COVID-19

By Eric Borgerding, President and CEO
Wisconsin Hospital Association

2020 marked the Wisconsin Hospital Association’s 100th anniversary …. and what a time for that! We’re out of adjectives for a year that challenged our state’s health system in ways unfathomable just 10 months ago, and not experienced since a century ago. But Wisconsin health care is poised to emerge stronger and better after COVID-19.

Updated Playbooks, New Strategies
COVID this spring was largely a dry-run, patients not surging heavily into Wisconsin hospitals until the third and fourth quarters. As the numbers of COVID inpatients increased drastically in September, hospitals utilized their earlier experiences and planning to reprioritize care, reallocate resources and retool space. With determination and creativity, Wisconsin hospitals added capacity for over 1,400 inpatients in order to absorb the COVID wave, restructuring lobbies, waiting rooms and even ambulance garages to handle patient overflow and safely treat both COVID and non-COVID patients. All this while hospitals massively expanded their COVID testing capacity and conducting the majority community testing across our state.

Built to Bend … Can’t Allow to Break
Staffing that expanded capacity, in a highly contagious pandemic, has proven an immense challenge. Community spread of COVID has taken thousands of Wisconsin heath care workers out of the fight at the same time demand surges. Hospitals have used every staffing tool and resource to cope, but neither the supply nor resiliency of our incredible heath care workers are infinite. The sustained, COVID-caused maximum capacity operation of hospitals, enabled by seemingly endless shifts behind masks, gowns and shields, and filled with tragic losses of life (over 4,700 Wisconsin COVID deaths), has taken a toll on the state’s health care workforce. Wisconsin’s nurses, doctors, technicians, custodians, administrators, aids, food service workers and many others working to keep us healthy and safe have truly earned the title “Hero”.

Like other sectors, the pandemic has inflicted serious financial damage on health care. A federal directive in March that postponed non-emergency hospital care translated into approximately $2.5 billion in net losses for Wisconsin hospitals over four months. Delayed care, whether by government mandate or capacity conserving necessity, has other serious, yet underappreciated, ramifications. One study found that 41% of U.S. adults avoided medical care due to the pandemic through June 30. Applying lessons learned in the spring, hospitals are doing everything possible to minimize “crowd-out” of non-COVID care during the fall and winter surge. This is one of the many reasons slowing down COVID is a statewide, multi-industry imperative.

Teaming Up to Stop COVID
In September, as COVID began raging in earnest here, WHA led the creation of a multi-industry coalition “Stop the COVID Spread!”, a diverse group intent on cutting through the politicization of COVID to drive widespread adoption of simple, yet critical, healthy behaviors. Since its launch in October, the “Stop the COVID Spread!” coalition has grown to more than 125 Wisconsin organizations and aired five separate messaging campaigns. The Wisconsin Bankers Association was one of the first to lend its name and support to this effort … thank you, WBA!

“Out of Adversity Comes Opportunity”

Like many industries, health care will be forever changed by COVID and so, we hope, will government. Wisconsin’s hospitals initiated and refined new methods of care and resource use that are driving better outcomes and helping government embrace regulatory changes today and substantiate more reform in the future. Pandemic-driven innovation, from expedited physician and nurse licensure to expanded use and acceptance of telehealth to new uses for hospital space, will maximize health care quality, access and affordability long after COVID recedes.

I firmly believe Wisconsin’s nation-leading hospitals and health systems will emerge from COVID-19 stronger and better than ever.

“As Governor Evers prepares the budget that will be presented to the Legislature in February, it is critical that there be a focus on continued investment in Wisconsin’s infrastructure.”

Construction is Essential for Wisconsin’s Future Economic Growth

By Robb Kahl, Executive Director
Construction Business Group

Many contractor balance sheets are reporting 2020 revenue numbers that normally reflect a strong economy and healthy industry. That seems to be a mixed message when we know that Covid-19 has devastated the financial stability of many businesses, institutions and local and state governments. To make sense of this, it is important to understand that construction projects completed this year were bid, negotiated and won in 2019 or earlier.

Even though 3 out of 4 contractors across the country experienced project delays or cancellations due to Covid-19, being deemed an ‘essential’ industry was critical in allowing many construction projects to continue over the last year – some were even completed in record time because of reduced occupants in schools, vacant corporate office buildings and fewer vehicles on the road. The construction industry was also one of the largest recipients of Payroll Protection Program (PPP) loans, allowing contractors to retain employees and providing an economic boost to counter balance increased project costs and project delays.

The common storyline from contractors about the 2021 outlook is concern over the decreasing backlog of work as their customers are uncertain about future building plans. National and local politics, increasing COVID-19 cases that make a return-to-work or school soon unlikely, and concerns about an economic recession all contribute to this uncertainty. It is no surprise that the collective prediction of economists is that the impact of the Covid-19 pandemic will be significant to both public and private sector construction because select industries were essentially shut down (manufacturing, retail and hospitality among them) and tax revenue, critical to public project funding, has decreased.

While multi-family and single-family residential construction has been strong throughout 2020, all major categories of nonresidential construction spending have decreased since February. Power, distribution centers and data centers are markets forecasted to have positive increases in 2021. Education construction is a mixed story with declining higher education construction due to decreased revenues for the UW System, but K-12 construction will likely be strong as Wisconsin voters passed 85% of school referendums on the ballots in November.

As Governor Evers prepares the budget that will be presented to the Legislature in February, it is critical that there be a focus on continued investment in Wisconsin’s infrastructure. Even throughout the pandemic when fewer residents were on the road, we realize how essential transportation is to our everyday life – keeping store shelves stocked, allowing grocery and meal deliveries to continue and stocking Amazon distribution centers. We also realized how essential our fiber-optic infrastructure is due to remote work and learning demands, and investments to improve fiber-optic infrastructure, especially in rural Wisconsin, must continue.

Ongoing investment in Wisconsin’s infrastructure is essential for recruiting and retaining businesses in our state and to post-Covid-19 economic recovery. That investment is also crucial in providing financially rewarding jobs to the more than 125,000 construction industry employees that call Wisconsin home. Wisconsin’s construction industry is essential to the health and success of our state and we welcome the challenges and opportunities that 2021 will bring.

The Construction Business Group promotes and protects the construction industry. They ensure fair contracting laws are followed on public construction projects. They work co- operatively with contractors, employees, and public entities by educating them on fair contracting laws, monitoring projects for fair contracting compliance, and identifying and helping to resolve compliance issues.

“There are a number of reasons why many of us want to move on from 2020. But many Wisconsin farmers will look back at 2020 as a fair-to-good financial year.”

Wisconsin Agriculture Economic Update

By Kim Pokorny, Chief Administrative Officer
Wisconsin Farm Bureau Federation

Certainly, no one could have predicted how 2020 would unfold when the calendar turned last January. The COVID-19 virus has infected every aspect of our lives. In addition to being a serious health threat to some individuals, it had negative ramifications on American society and the economy at large. In the agriculture world, we saw a volatile market become even more unstable as investors scrambled to protect themselves. Food processing plants reduced their output due to restrictions on how many employees could work in close proximity as well as a record number of employees who were required to quarantine. This caused a backup in the food chain process. Shuttered slaughterhouses and meat packing plants running below capacity left some farmers in the lurch when their livestock were finished but had no place for processing. The dairy markets plunged temporarily creating a panic. Some co-ops and milk brokers struggled to find markets for their contracted milk leaving a few Wisconsin dairy farmers with nowhere to ship their milk. The crushing economic destruction to the commodity markets resulting from the coronavirus pandemic devastated the labor force, threatened food supply chains and created panic buying from retailers and consumers.

In spite of the chaos in the industry during the spring and early summer months, Wisconsin farmers still planted their crops and cared for their livestock…in short, they were still farming. A phrase that lead to a social media campaign to reassure consumers that food would continue to be on the grocery store shelves. We scrambled for a few months to adjust to what the markets were doing, but the good news is that the grain and milk markets have righted themselves somewhat. While farmers were working with these unstable markets, the U.S. Department of Agriculture stepped up and provided a financial foundation directly to many farmers and ranchers through the Coronavirus Financial Assistance Program. Under the advisement of the Secretary of Agriculture, the Administration provided $16 billion for direct aid payments for loss to farmers in the summer. This was followed by an additional $14 billion from USDA in a second round of CFAP payments for farmers who continued to face market disruptions and associated costs due to COVID-19. Much of this program was distributed to assist stabilizing the dairy and livestock industries.

As the harvest set in, Wisconsin yields proved stellar. The weather for this growing season in our state was excellent. Farmers in other states struggled with situations out of their control such as the derecho in Iowa and drought in the Southwest. Never-the-less, net farm income for 2020 is looking to be the second highest on record, second only to 2013 according to Total Farm Marketing. The markets are demand-driven and that is strengthening the price. Exports are strong as China begins to build back its pork industry by increasing their contracts for corn and soybeans. Grain stores are tightening which encourages an increase in price. The USDA January 2021 report will help define how much the markets may have tightened due to overall crop volume. South America’s upcoming harvest will also be a determining price driver on the world market.

The dairy industry is realizing stronger demand in cheese, not-fat dry milk and whey. This is due in part to increased exports. While butter is expected to stay stagnant, which may hold back Class IV milk, Class III sales is forecasted to remain strong.

In summary, there are a number of reasons why many of us want to move on from 2020. But many Wisconsin farmers will look back at 2020 as a fair-to-good financial year. This is attributed primarily to 1) strong federal support programs, 2) a record harvest and 3) an increase in exports which brought about a quicker recovery of commodity prices. This should help many farmers start 2021 in a better financial position than we might have thought six months ago. One thing is for certain: the markets are not settled and remain unstable. This is a good time for farmers and their lenders to be considering risk management strategies for the next season. There are so many variables that farmers cannot control but protecting a floor and keeping the upside opportunity open will help them sleep better at night.

WFBF is the state’s largest general farm organization, representing farms of all sizes, commodities, and management styles. There are nearly 47,000 members that belong to the Wisconsin Farm Bureau. Voting Farm Bureau members (farmers) annually set the policy the organization follows, and are involved in local, state and national affairs, making it a true grassroots organization.

“Grocers took on the pandemic one day at a time doing what they could with what they had to work with. And while there are lots of changes, it worked.”

Your Neighborhood Grocery Store – Ready For More

By Brandon Scholz, President and CEO
Wisconsin Grocers Association

To paraphrase an old UK television show from the 1960s, That Was the Week That Was (TW3), 2020 was the year that was. It certainly started out like any other year but quickly exploded into unknown situations and unforeseen challenges for almost every business and industry. Grocers, as essential businesses, were thrust into the middle of the COVID chaos.

New rules and regulations from federal, state, and local governments filled inboxes almost every day. Pandemic news led to stockpiling, hoarding, price gouging, product shortages, and consumer challenges.

Stories from across the state and country reveal the gallant efforts grocers went through to protect their employees and customers. There’s no shortage of examples with grocery stores engaging health and safety protocols, sharing best practices and creative ways in which grocers dealt with self-serve, delis, produce, meat cases, and more.

As an industry that provides necessities for consumers to survive, grocery stores throughout Wisconsin saw significant changes and challenges to their daily, weekly, and monthly business plans.

Some say the grocery industry had nothing to worry about because people have to eat. While store sales showed that to be the case , getting there was a challenge never experienced by any single component of the industry from producer, manufacturer, warehouse supplier, and retailers. There was no playbook for this pandemic. And no grocer wanted to be the focal point of positive testing or infections.

While store sales exceeded previous levels, expenses grew past normal operational costs with the inclusion of daily sanitation programs across all departments, not just the shopping carts in the corral. Add to that Personal Protective Equipment (grocers were not on the list of PPE until early summer when FEMA masks were provided by DATCP), more Plexiglas installed than ever imagined, social distancing programs, and so much more.

Like most businesses, grocers were under the regulatory thumb of federal, state, and local governments daily that mandated how (and in some cases, when) products could be sold and to whom. Customers changed their shopping habits and maintaining a daily workforce became even more of a challenge.

First, every effort was made to protect employees with gloves, masks, sneeze guards, six-foot perimeters, and more. And while one would have thought there would be a pool or ready-to-hire from those not working, state and federal unemployment and CARES funding drove the hourly rate to a point where it wasn’t worth forgoing the subsidy to go to a full-time job.

Government mandates took their toll as well. Limitations to store capacity and other mandates challenged retailers and their customers. Uncertainty bred anxiety. Not knowing whether the government was going to release dated, private data on coronavirus testing of employees or how to comply with local ordinances that were different from other regulations didn’t make compliance easier.

Grocery shoppers changed as well and retailers had to accommodate those changes. The pandemic also wreaked havoc on the entire supply chain, manufacturers and processors had trouble keeping up with demand and could only produce what they could from a materials standpoint. As a result, grocers received 70% (on the average) of their expected delivery.

Shoppers had to learn to substitute products if their favorite item wasn’t on the shelf. They also had switched from multiple trips to the store to one trip per week. And while they may have added more to their cart than in the past that presented challenges to grocers to stay up to speed with what their customers wanted.

Product shortages drove customers and grocers crazy. Milk and eggs needed new packaging to move product from institutional use to retail; meat and poultry processors and packaging plants were shut down due to coronavirus outbreaks; and at times, CDL drivers were in short supply.

Grocers made it through 2020 working to present a shopping experience that attempted to create some normalcy in the store for their customers.

As we head into 2021, the grocery industry needs help from Madison and Washington. We need liability protection as we head into the next phase of the pandemic. We need government to be consistent in their regulatory efforts and working together to avoid patchwork mandates from one local government to the next.

There were times back in March and April when many wondered what when the pandemic would end. Some thought it would happen in a month or two, others planned for the long haul.

Grocers took on the pandemic one day at a time doing what they could with what they had to work with. And while there are lots of changes, it worked.

Your neighborhood grocery store is ready for 2021. We’ll see you in the aisles.

The Wisconsin Grocers Association represents nearly 1,000 independent grocers, retail grocery chain stores, warehouses and distributors, convenience stores, food brokers and suppliers. Wisconsin grocers employ over 50,000 people with $815 million in payroll and generate more than $6 billion in annual sales in Wisconsin resulting in approximately $250 million in state sales tax revenue.

“COVID-19 vaccines will slowly release the virus’ strangling grip on the economy, and President Biden’s economic agenda will be to the political and economic left of President Obama’s.”

Unsolicited Economic Advice for the Biden Administration

By Kurt Bauer, President and CEO
Wisconsin Manufacturers & Commerce

This is my 10th column for WBA’s annual economic forecast since joining WMC, and during that time, I haven’t always followed Rose’s clear instructions to focus on predicting what the New Year looks like for manufacturing. The reason is that predicting the future is hard in any given year, and especially so as we begin 2021 with two major unknowns looming over the U.S. economy.

The first, of course, is the COVID-19 pandemic and whether vaccines can be produced, distributed and administered before the virus causes even more severe disruptions to the economy.

The second is what policies will President Joe Biden pursue and will his party control both houses of Congress (at press time, the two U.S. Senate runoff elections in Georgia haven’t occurred).

My broad prediction is that the COVID-19 vaccines will slowly release the virus’ strangling grip on the economy, and that President Biden’s economic agenda will be to the political and economic left of President Obama’s.

I don’t anticipate being asked by the Biden transition team for ideas on what is needed to reinvigorate the U.S. and Wisconsin economies after the pandemic. But I was asked that question before the election by the Trump Administration as they hoped to prepare for a second term. Here’s what I suggested.


A broad category, I know, but Wisconsin and many other Midwestern states have a demographic challenge (low birthrates compounded by outmigration) that is creating a severe labor shortage. It was Wisconsin’s top economic problem pre-COVID-19. And even now, with our unemployment rate below 6%, businesses can’t find workers.

A short-term remedy might be a program specifically aimed at retraining displaced hospitality sector workers. Longer-term, states like Wisconsin need better prepared students coming out of K-12 who have been exposed to the careers our economy has available, many of which are in manufacturing and the skilled trades. These are good, family supporting careers with tremendous upward mobility. But so much of the K-12 curriculum focuses on college prep with its high cost and sometimes low ROI.

We also need a greater emphasis on STEM and soft skills in K-12 schools. I can’t tell you how many of my member CEOs complain about young people not having the basic understanding of what an employer is looking for, from showing up on time to working as a team.

In addition, we need immigration reform to permit more people from around the world who want to contribute to our economy and society in. This could be a pathway to citizenship or a guest worker program, similar to what the Canadians have with Mexico. That system dictates where a guest worker will go, what industry he/she will work in and for how long. Some parts of the U.S. don’t need workers. Other parts, like Wisconsin do. Our immigration system should recognize and account for that fact.

Wisconsin needs workers at all skill levels, including in demand degree areas like engineering. Wisconsin has a great University of Wisconsin System and equally impressive private colleges and universities. They attract the best and brightest from around the world. Once they get their degree, many want to stay in the U.S., but can’t get an H-1B Visa. So instead of contributing to our economy, they are told to leave and compete against us. That is not a smart policy.

The bottom line is that immigration played prominently in Wisconsin’s economic and cultural history (my maternal grandparents and paternal great grandparents came here from Germany). It needs to play a role in Wisconsin’s future. Otherwise, Wisconsin’s economy will contract because of a lack of the workers we need.


Wisconsin is a manufacturing, agricultural and tourism state. The common need for those three sectors is infrastructure to get goods to market and tourists to our resorts, lakes, hunting land, etc.

But we also need to expand broadband in rural areas, especially given that remote work, and perhaps education, is here to stay.

Tax Reform for Manufacturers

Wisconsin has a state-level manufacturers’ tax credit to encourage production (and jobs) in our state. Something similar at the national level could be the incentive manufacturers need to re-shore to the U.S. But, just to put a fine point on what I wrote above, the biggest barrier to re-shoring manufacturing jobs for Wisconsin companies is available workforce. Immigration and tax reform would grow the sector, especially given the huge advantage the U.S. has on energy, assuming (and it is a big assumption) that the Biden Administration doesn’t reverse course on utilizing America’s abundant oil and natural gas resources.

Founded in 1911, Wisconsin Manufacturers & Commerce (WMC) is the combined state chamber of commerce, state manufacturers’ association and state safety council. With nearly 3,800 members, WMC is Wisconsin’s largest business association representing employers of all sizes and from every sector of the economy.

“The new year can’t be much worse than the old. With luck and hard work, it can be a lot better.”

Maybe Projects, Priorities Deferred in 2020 will Get Attention in 2021

By Tom Still, President
Wisconsin Technology Council

Realistically speaking, how much worse can 2021 be than the mess of a pandemic year that preceded it? In hopes that 2021 will release COVID-19’s insidious grip, here are predictions for what to expect out of the new year in Wisconsin and Washington, D.C.

Tech innovation isn’t just for Madison and Milwaukee anymore. Rock County is the home of two companies that aim to supply next-generation medical radioisotopes now produced exclusively offshore. A software company formed in an Eau Claire basement recently went public on the NASDAQ. A unique partnership between the Green Bay Packers, the UW-Green Bay and Microsoft has created a tech hub in Green Bay. More examples will unfold as the year moves on.

Early stage investing in Wisconsin will rebound. COVID-19 couldn’t kill venture and angel investing in Wisconsin or, for that matter, most of the nation. Even if the state’s 2020 numbers come in below the 2019 record $454 million in Wisconsin investments, the coming year will likely bring a fresh look at young tech deals. One reason is the 2020 surge of tech IPOs, or initial public offerings, which means more COVID-parked money will search for new on-ramps to financial returns.

The changing face of Wisconsin’s investor corps will help. It’s no secret that angel and venture capital has largely been a province of white guys who made money in tech over time, but some important changes are afoot. Women are involved in leadership positions at more than 20 Wisconsin funds, networks, corporate venture funds or other early stage investment groups. Also, Black-led funds are emerging. Diversity will likely lead to different kinds of deals, if not more deals.

Tech will accelerate healthcare changes. Some of Wisconsin’s largest healthcare companies and systems were pressed into a “pivot mode” during the pandemic. Companies such as Epic, Exact Sciences, GE Healthcare and Promega made waves nationally, but so did many smaller Wisconsin firms such as Midwest Prototyping, Carebot, AIQ Global, Novir, Semba Biosciences, FluGen and many more. Telehealth exploded in most clinical settings, as did platforms using artificial intelligence and digital health records. Look for more of the same.

Rural development can’t be ignored. If the Democratic Party learned anything from the 2020 elections, it should be that it must look beyond big cities to rural America when it comes to fostering economic growth. A bipartisan approach in Congress and the Wisconsin Legislature on broadband is needed more than ever. Also, the coming revolution in bio-industrial innovation is ideally suited for states such as Wisconsin that can lever natural resources as well as manufacturing.

Address data privacy nationally. The United States was a leader in data privacy laws decades ago, but not enough is being done at the federal level today to prevent personal information from being misused. The European Union’s General Data Protection Regulation aims to harmonize privacy laws across the EU, but critics say it continues practices that have long stifled innovation in Europe. China’s data privacy protocol is even more far-reaching and, some argue, even dangerous, given fears of cyber-snooping on U.S. tech companies. President-elect Biden and Congress should adopt federal standards to pre-empt 50 different state privacy laws, an outcome that would make a mess of interstate commerce while confusing consumers.

The new year can’t be much worse than the old. With luck and hard work, it can be a lot better.

The Wisconsin Technology Council is the independent, non-partisan science and technology advisor to the governor and the State Legislature.

“Record low mortgage rates have created a significant spike in housing demand…What is remarkable is that sales are growing at a record pace even though inventory levels signal a strong seller’s market.”

Wisconsin Home Market Resilient as the Economy Continues to Recover

By Michael Theo, President and CEO
Wisconsin REALTORS Association
With insights from Dave Clark, economist with Marquette University

February brought an end to the nation’s longest economic expansion. The economy had begun to slow even before the pandemic-induced economic lockdowns resulted in an unprecedented 31.4% slide in real (i.e., inflation adjusted) GDP in the second quarter of 2020. Fortunately, the combination of quick and aggressive actions taken by the U.S. Congress and the Federal Reserve Bank generated a significant economic bounce as real GDP growth rose sharply in the third quarter (33.1%), albeit on a much lower base of economic activity. Given ongoing policy efforts to limit the spread of the COVID-19 virus, it is not surprising that real GDP remains slightly below its pre-pandemic level. However preliminary indicators do suggest modest growth in the fourth quarter. This will hopefully result in a relatively normal recession, at least in terms its length. Note that the average post-war recession lasted 11.1 months.

The National Bureau of Economic Research (NBER) is the organization that officially defines the precise month in which a recession begins (the current recession began in February 2020), and the month in which it ends. The NY Federal Reserve Bank tracks the components of real GDP in real time and their preliminary estimates suggest modest growth in the range of 2.5% in the fourth quarter. While this is good news, we will need to see sustained growth in income and employment before the NBER concludes that the recession has officially ended. Once vaccines have been widely distributed, we expect economic activity to return to pre-pandemic levels.

While the economic recovery might not be V-shaped, the Wisconsin housing market recovered very quickly after a short three-month decline between April and June. This largely coincided with the timing of the economic lockdown of the state. The president declared a National Emergency in mid-March, and given the lag between an accepted offer and a closing, the impact of the virus began to show up in April home sales, where the number of closings slipped 4.7% compared to April 2019. On an annualized basis, May sales declined far more dramatically (-23.4%), but by June they were down just 1.7% relative to their levels 12 months earlier. The July through October period of 2020 revealed average growth in closed sales of 14% compared to that same four-month period in 2019. Indeed, Wisconsin is on record pace to sell more homes in 2020 than in any year since the Wisconsin REALTORS® Association re-benchmarked its data collection methods back to 2005, something that seemed nearly impossible in May.

Why have home sales increased at such a robust pace even though the state labor market, while improving, is still considerably weaker than last year? The simple answer is that record low mortgage rates have created a significant spike in housing demand. Prior to 2020, the 30-year fixed rate mortgage had been at its lowest point in November and December of 2012, when it fell to 3.32%. That rate was 3.31% in April of this year, and it has hit new record lows every month since that time. In November, the 30-year rate stood at 2.77%, which is 93 basis points below the November 2019 level. What is remarkable is that sales are growing at a record pace even though inventory levels signal a strong seller’s market. Six months of available supply is considered to be a balanced market, and Wisconsin had just 3.3 months of supply in October, which is down 31.3% from the 4.8 months of inventory just 12 months earlier. Not surprisingly, strong demand and weak supply continue to drive prices upward. On a year-to-date basis through the end of October, the Wisconsin median price rose 11.1% to $220,000 compared to the first 10 months of 2019. Still, housing remains relatively affordable due in large part to the record low mortgage rates. The Wisconsin Housing Affordability Index shows that fraction of the median priced home that a typical buyer with median family income can afford to buy given 20% down and the remaining balance financed with a 30-year fixed rate mortgage at current rates. In October, this index was at 199, suggesting that a buyer can afford to purchase nearly twice the median income in the state. Although affordability has fallen 6.5% relative to 12 months earlier, it remains higher than the national index. The national Housing Affordability Index published by the National Association of REALTORS® was at 160 in September (the latest data available at press time), and this is about 18% lower than the comparable September index value for Wisconsin.

A presidential transition, especially when it also involves a change in political party carries with it substantial uncertainty since the two parties have very different views of the appropriate roles of the private versus public sectors in the economy. Still, there are several reasons to be optimistic about the future. First, the primary drag on the economy is the ongoing pandemic, and the restrictions on economic activity currently used to control the virus. With the imminent distribution of a vaccine, we believe that constraint will be effectively lifted in the first half of 2021. Second, the Fed has indicated that it will keep short term interest rates near 0% for the foreseeable future. They view the risk of inflation as minimal and they are committed to expansionary monetary policies to stimulate growth. As long as inflation remains low, this bodes well for continued low mortgage rates in 2021. Third, assuming a Republican-held Senate, a divided federal government should keep the regulatory burden in check. At the state level, once the pandemic has ended, policymakers need to move quickly to fully reopen the state economy. Only then will we see employment levels return to pre-recession levels. In addition, working to reduce the regulatory burden on new residential construction will help to ease supply limits in the state. Finally, although state legislators have little control over local property tax decisions, maintaining a tax environment that is favorable to business formation will continue to support the housing market.

Founded in 1909, the Wisconsin REALTORS® Association (WRA) is one of the largest trade associations in Wisconsin. It represents and provides services to more than 16,500 members statewide. WRA’s goal is to help REALTORS® enjoy successful careers and stay competitive in their local markets by offering hundreds of products and services.