- Recent real-time data for the U.S. economy continues to be mixed. An improving jobs market to support spending is offset by signs that mobility rates have stalled in several states.
- The still-high levels of COVID-19 infections, together with no agreement in extending emergency COVID-19 relief, suggests that the near-term outlook remains tough.
- We still expect the economy to grow in the third quarter--absent widespread stay-at-home orders--though we now see that the forecasted bounce back in the third quarter (22.2% annualized growth in real GDP in our June forecast) is very much at risk of weakening.
As more states reverse plans for reopening and the U.S. government negotiates the next round of emergency stimulus to keep the economic recovery on track, recent real-time economic data continues to be mixed. While total COVID-19 cases in the U.S. have topped 5 million, the number of new cases has fortunately slowed recently, through Aug. 8. While we hope this signals that the U.S. is now able to contain the virus, with fewer states forced to reverse reopening their economies in the near future, the path of the virus is extremely uncertain.
S&P Global Economics still sees the probability of a worse economic outcome--than its base-case projection--at 30%-35%. Although our base case is for a gradual recovery through next year, still-high levels of COVID-19 infections, together with no agreement in extending emergency COVID-19 relief, suggests that the near-term outlook remains challenging.
COVID-19 cases have risen by 57% since mid-June (see chart 1). States like California, Texas, and Florida--which are ranked in the top five states by GDP measure and together account for close to 28% of the economy--have already started instating and reinstating restrictions on indoor and group activities (see chart 2). Another seven states have reinstated restrictions, while 14 states have paused their plans to reopen. Combined, these 21 states account for an additional 30% of the U.S. economy.
Absent widespread mandated stay-at-home orders (like in April), we still expect the economy to grow in the third quarter. The stronger-than-expected July jobs report from the Bureau of Labor Statistic (BLS) supports that claim. However, we now see that the hoped for bounce back in the third quarter (22.2% annualized growth in real GDP in our June forecast) is very much at risk of weakening. Whether Capitol Hill will extend stimulus measures will also weigh on how the bounce plays out the rest of the year.
Mobility Rates Stall
Our real-time tracker saw mobility rates for the nation overall stall this week, as increasing new restrictions, and possibly fears of exposure, have kept people closer to home (see chart 3). On a positive note, while still in negative territory, the New York Fed's weekly composite index (WEI) of real economic activity using timely and relevant high-frequency data has improved somewhat in its most recent Aug. 8 reading (see chart 4).
Consumers Are Remaining Cautious
Consumer confidence continues to reflect uncertainty of the COVID-19 crisis. The University of Michigan is nearly at its May low, though the Rasmussen indicator has ticked higher (see chart 5). Consumer spending also seems to have hit a pause after a long climb back, with both low-income and high-income localities ticking lower through Aug. 2 (see chart 6). The missing spending multiplier from high-income areas in particular will pose a headwind to further recovery.
Retailers that have survived the shutdown appear to have at least found the bottom for now, with a slight pickup in retail sales in Aug. 8 data (see chart 7). But pressure on people-facing businesses and industries remains unprecedented--a result of various government restrictions on capacity, expiring government stimulus hurting pocketbooks, and a curbing of customers' demand based on fears of venturing out.
Restaurant reservations continue to weaken, and movie theaters have yet to make any strides, with households apparently preferring the comfort of takeout and watching movies at home (see chart 8).
While hotel indicators have improved since the severe plunge in April, occupancy rates remain depressed (see chart 9). Flying remains out of favor still, with air traffic on Aug. 10 down 70% year over year (see chart 10). While the West Texas oil price is recovering from crisis lows, it remains below break-even prices, with rig counts down further. However, U.S. refiner activity is nearing precrisis levels in anticipation of greater demand for fuel, perhaps as people stick to a safer form of transportation--their own cars (see chart 11). Capacity utilization of raw steel production remains subpar (see chart 12).
Industries Are Stabilizing
As industries are warming to producing and shipping again, weekly rail traffic has also stabilized, though around 10%-15% below year-ago levels. Minus the July 4 bump above the 2019 average, none of the 10 carload commodity groups posted an increase compared with the same week last year (see chart 13).
More Business Closures Become Permanent
The longer the duration of the virus, the higher the chances of more business failures, despite a high number of new business applications and a steady increase in business reopenings since April (see charts 15-16). The percentage of small business closures has fallen from April highs, though it varies by industry. Bar and lounge closures witnessed a dramatic improvement while art and entertainment closures barely budged. Small businesses that have already spent small business loans to survive so far are seeing risk to business continuity rise. According to a recent survey report by Yelp, since March, 55% of the 132,5000 temporary closures in the survey have permanently closed as of mid-July, increasing worries that temporarily unemployed workers may have lost their jobs permanently.
Despite news of permanent business closures and the reversal of some states' plans to reopen their economies, employment data continues to improve, albeit slowly. After the BLS posted a better-than-expected 1.8 million jobs gained in July, initial unemployment claims for the week ended Aug. 8 finally fell below 1 million, the first time since mid-March (see chart 17). But, at 960,000, they're much higher than the pre-virus historical high of 695,000, seen in late 1982.
Moreover, those quick recalls of temporary unemployed may be in the past. We suspect that the jobs being lost are permanent, and that's a real problem for the economy and for households. Continuing jobless claims fell by 604,000 in the Aug. 1 week. Assuming these unemployed workers were reunited with their jobs, it's good news. However, we can't rule out that the drop in continuing claims was from the expiration of unemployment benefits without a job waiting at the end (see chart 18).
The Housing Market Picks Up Slightly
The silver lining has been housing. However, the spring in the housing market may face challenges. Although pent-up demand from the delayed spring buying season provides support, the recent spread of the virus may limit activity in the south (see chart 19).
Lumber prices have continued to climb, supported by housing strength (see chart 20). Retail gasoline prices have stabilized at just under $2.20, much higher than the $1.78 low in late-April at the height of the U.S. quarantine though well below precrisis levels (see chart 21). The Baltic Dry Index (BDI)--which measures changes in the cost of transporting various raw materials--also has risen for the 12th session on a pickup in demand across vessels (see chart 22).
As economic data continues to show a mixed picture, stress in the financial markets has subsided to pre-pandemic normal levels. The Fed has communicated strongly that it will do "whatever it takes" and increased its asset purchases significantly (see charts 23 and 24). Clear forward-looking accommodative communication and bank reserve provisions have led the financial markets to put the March episode behind--at least for now.
The views expressed here are the independent opinions of S&P Global's economics group, which is separate from, but provides forecasts and other input to, S&P Global Ratings' analysts. The economic views herein may be incorporated into S&P Global Ratings' credit ratings; however, credit ratings are determined and assigned by ratings committees, exercising analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.
|U.S. Chief Economist:||Beth Ann Bovino, New York (1) 212-438-1652;|
|U.S. Senior Economist:||Satyam Panday, New York + 1 (212) 438 6009;|
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