Four Charts Show A Flattening Recovery

There has been a lot of speculation about what shape the recovery could be from the lockdown and economic collapse the U.S. has endured from Covid-19. While there was (and may still be some) hope for a V-shaped recovery, there is growing evidence that it could be more along the lines of an L, U or W-shape or a Nike swoosh.

While there should be a rebound from the June quarter’s negative GDP growth of 32.9% in the September quarter, with the continued high counts of coronavirus cases it appears that the recovery is flattening out.

Initial unemployment claims have ticked up the past two weeks

Initial unemployment claims exploded starting with the March 21 report of 3.3 million. They peaked the next week at 6.9 million and had fallen for 15 weeks to 1.3 million as of July 11. Note that even though they had fallen to 1.3 million this was essentially two times the highest number ever recorded before for a single week.

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Unfortunately, two weeks ago there were 1.42 million filed and as of the past Thursday there were 1.43 million initial claims. While the increase has been small over the past two weeks, if they stay around these levels it indicates that the initial burst of people coming back to work has tailed off.

Oxford Economist’s tracker showing cracks to the recovery

Gregory Daco, Oxford Economics Chief U.S. Economist, tracks six metrics to gauge how the economy is performing. In his latest report he wrote, “The foundations to this recovery are cracking under the weight of a mismanaged health crisis. Our Recovery Tracker fell for the third time in five weeks in the week ended July 10. The health index declined for the fourth consecutive week; demand fell for the second consecutive week, its largest decline in four months; and employment was unchanged.”

NY Fed indicator showing progress but at a slow rate

One Index that estimates yearly GDP growth rate is the New York Feds Weekly Economic Index or WEI. It estimates the yearly growth rate if current conditions were to continue for a year.

The WEI is an index of ten indicators of real economic activity, scaled to align with the four-quarter GDP growth rate. It represents the common component of series covering consumer behavior, the labor market, and production. The WEI is not an official forecast of the Federal Reserve Bank of New York or its president, the Federal Reserve Bank of Dallas or its president, the Federal Reserve System, or the Federal Open Market Committee.

Its components are:

  • Initial unemployment insurance claims
  • Continuing unemployment insurance claims
  • Federal taxes withheld
  • Redbook same-store sales
  • Rasmussen Consumer Index
  • The American Staffing Association Staffing Index
  • Raw steel production
  • U.S. railroad traffic
  • U.S. fuel sales to end users
  • U.S. electricity output

During the first two months this year the Index was showing yearly GDP growth ranging from 1.2% to 2%. It started to turn negative in late March and its lowest reading was negative 11.5% in late April.

The Index showed slow but steady improvement until early July when it hit some bumps in the road with its most recent reading coming in at negative 6.6%. This Index is worthwhile to keep an eye on to see if the improvement can get back on track or if it also stalls.

Consumer sentiment is still in the dumps

The University of Michigan Institute of Social Research reported, “Consumer sentiment sank further in late July due to the continued resurgence of the coronavirus. In the last four months, the Sentiment Index has remained trendless, averaging a decline of 25% from the same period in 2019. The Expectations Index fell back to a six-year low first recorded in May, providing no indication that consumers expect the recession to end anytime soon.”

  • Consumer sentiment: July 2019 was 98.4, June 2020 was 78.1 and July 2020 is 72.5
  • Expectations Index: July 2019 was 90.5, June 2020 was 72.3 and July 2020 is 65.9
  • Current Conditions Index: July 2019 was 110.7, June 2020 was 87.1 and July 2020 is 82.8

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