- Real-time indicators point to an economy on the mend, but at a decelerating pace as elevated uncertainty about the pandemic and fiscal stimulus tilts risks to the downside for the economic outlook in the fourth quarter and beyond.
- More states have resisted rolling back reopening despite an increase in the number of COVID-19 cases per million population in the U.S., particularly in the Midwest and the Rockies.
- People-facing businesses and industries continue to struggle with only a modest lift from recession lows amid continued government restrictions on capacity, expiring government stimulus, and fear-capped customer demand.
- Initial unemployment claims are nearly 4x the pre-pandemic level, and job openings are well below normal.
Since our last U.S. real-time data report on Oct. 8 (see "The Economic Recovery Decelerates"), the data remains mixed, highlighting the growing divide between those exposed to the economic damage from COVID-19 and those more insulated from it. Our real-time economic indicators continue to show an economy that is slowly climbing out of the hole it fell into during the recession (see table). This is in line with our belief that after the U.S. economy took the elevator down and halfway back, the recovery has to take the stairs the rest of the way up.
Gains vary by sector. Indicators for most goods-producing industries, excluding energy, have moderated in growth, though they are largely above pre-pandemic levels. However, people-facing industries remain challenged, still meaningfully below the pre-pandemic normal.
The virus case numbers are up sharply in states across the Midwest and the Rocky Mountains after an earlier resurgence in Sun Belt states such as Texas, Florida, and California (see map 1). The death toll has been dramatic, with 222,157 COVID-19 deaths nationally as of Oct. 22. The increase in cases was somewhat expected, given state reopenings have broadened after a midsummer pause or even reversal in some cases (see map 2). The timing of schools reopening nationwide is also a compelling correlation with the resurgence in cases.
|Real-Time Economic Indicators Snapshot|
|Indicator||What the data shows|
|New COVID-19 cases||New COVID-19 cases are rising (again) in Europe and North America. In the U.S., per capita new cases picked up in the past week and reached a more than two-month high, now up sharply in the Midwest and Rocky Mountains.|
|Reopening of U.S. states||Most states have reopened despite the recent pickup in COVID-19 cases.|
|Google Mobility||Mobility has remained relatively stable since July. As of Oct. 14, mobility was still 30% below pre-pandemic levels (Jan. 3-Feb. 6).|
|Weekly Economic Activity Index||The composite index showed rapid improvement throughout Q3. But in recent weeks, the rate of improvement seems to be waning.|
|Johnson Redbook weekly chain-store sales||Same-store sales growth slowed to 1.2% year on year for the week ended Oct. 10, trending lower for the third straight week after a modest boost in August. Sales posted consecutive declines from April 10 to Aug. 15.|
|Low- and high-income household spending||Spending by high-income households remains under pre-pandemic levels as most people-facing discretionary service sectors remain challenged by capacity restrictions and virus fears. For the week ended Sept. 27, low-income spending rose 6.5% above the January level, while high-income household spending was 7.3% short of the January level.|
|Consumer readings||Still well below pre-COVID-19 levels, October consumer confidence largely remained steady from the previous month. Consumers remain uncertain about the future of the virus and the economy.|
|Open Table: seated diners at restaurants||U.S. restaurants are still operating at 35% below the level at the same time last year as of Oct. 18. Restaurants in New York and Illinois are 50% and 59% below, respectively.|
|Hotel industry||Hotel industry growth remains muted as people-facing sectors are still struggling to recoup. Occupancy operating was 29% lower in annual terms for the week ended Oct. 10.|
|Air traffic--TSA Checkpoint||Air traffic remains 60% below the level at the same time last year, reflecting the impact of COVID-19 on both the tourism sector and business travel.|
|Energy demand||Energy demand showed a fast recovery and is trending at the par pre-COVID-19 level, while the active rigs count remained quite low for the week ended Oct. 16, which reflects the lower crude oil price weighing on investment.|
|Raw steel capacity utilization||Capacity utilization continues to improve, coming in at 68% for the week ended Oct. 10, which was 12% below the 2019 level.|
|New business applications||Business applications increased by 31% year on year for the week ended Oct. 10, and growth remained elevated.|
|Home mortgage applications||Mortgage purchase applications have continued to move sideways since June after showing a V-shaped recovery as mortgage rates remained historically low.|
|Lumber futures||Lumber prices have been falling since mid-August but remain well above pre-COVID-19 levels.|
|Baltic Exchange Dry Index||The cost of transporting dropped for the eighth consecutive day as of Oct. 16, at $1,477. In eight days, the cost dropped by $620. The index has held above its 2019 average since June 19, 2020.|
|Industrial Metal Price Index||This index hit an eight-month high of $1,113.42 per point on Oct. 16.|
|Railroad Traffic Index||Rail traffic has increased by 2.3% year over year and remains above pre-COVID-19 levels. Its four-week moving average is trending higher.|
Considering the better understanding of effective prevention (masks, hand-washing) and treatments, as well as lockdown fatigue among U.S. households and a reluctance by policymakers to reinstate quarantine measures (particularly during an election year), we expect that the economic impact from the increase in virus cases will likely be more modest than what was experienced during March and April.
In contrast with the midsummer rise in the U.S., this time around, other major economies in Europe have also seen a steady increase, with France and the U.K. in particular showing dramatic upticks in cases--raising downside risk to demand for U.S. exports in the fourth quarter (see chart 1). In the U.S., the rate of positive tests, which had hovered near or slightly below 5% since the end of August, now stands at 6%, moving the wrong direction. (The World Health Organization has suggested a positive rate lower than 10%--but lower than 3% for advanced nations--as a general benchmark of adequate testing. In some countries, like Australia and South Korea, where they have had adequate testing, positive rates are below 1%.) Mobility measures, still below pre-COVID-19 levels, have also drifted lower compared with the recovery peak (see chart 2).
Real-Time Spending Measures Trend Lower
One of our preferred real-time measures, the weekly economic activity index from the New York Federal Reserve--which has a good record of mapping to real GDP--now indicates that a little more than three-fifths of the output lost from mid-February to the end of April had been recovered through the first two weeks of October (see chart 3). But the pace of gains has faced hiccups since mid-August, with the index now tracking -4% (year over year).
Meanwhile, the Johnson Redbook Index of weekly same-store sales has climbed back to positive territory year over year after posting consecutive declines from April 10 to Aug. 15. However, the pace has slowed, and the index remains volatile and below last year's normal level (see chart 4). Same-store sales growth slowed in October to 1.2% year over year for the week ended Oct. 10, trending lower for the third straight week and remaining well below its three-month pre-pandemic average year-over-year gain of 5.7%. From here on out, we suspect spending activity will settle down to a sustainable pace that reflects a jobs sector far from healed.
Upside for the goods sectors that were quick out of the gates to recover has moderated, and service sectors are still below normal as they face health concerns and restrictions. With activity in the housing sector increasing at a solid pace, durable goods will likely carry the goods sector moving forward, given the shift in spending behavior to nondurable goods from services (following pent-up demand and early lockdown fatigue) might have run its course.
Service-sector spending will be the source of overall spending growth. In our view, services consumption, such as entertainment, travel, restaurants, and gyms, will remain impaired for a while, setting a temporarily lower new normal before a vaccine is widely available. This is also, in part, reflected in high-income earners' spending trend, which remains below normal (see chart 5). The missing spending multiplier from high-income earners in particular will pose a headwind to further recovery.
S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of the coronavirus pandemic. The current consensus among health experts is that COVID-19 will remain a threat until a vaccine or effective treatment becomes widely available, which could be around mid-2021. We are using this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.
Uncertainty About COVID-19 And Potential Fiscal Stimulus Weighs On U.S. Consumer Sentiment
Meanwhile, consumer spending growth among low-income earners is at risk. Congress may eventually pass additional fiscal stimulus, but for now, news out of Washington has been unfavorable regarding chances of another meaningful fiscal stimulus passing before the elections.
Recovery in measures of consumer sentiment continues to show restrained optimism (see chart 6). While households remain cautious about their economic prospects heading into 2021, business confidence levels are upbeat. Already the ISM manufacturing and services sentiment readings are in expansion territory. In addition, the Conference Board's CEO survey indicates that business leaders are very optimistic about the future, in contrast to their household survey (see chart 7).
Pressure on people-facing businesses and industries remains extraordinary--a result of government restrictions on capacity, expiring government stimulus hurting pocketbooks, and a curbing of customers' demand due to fears of venturing out. Restaurant reservations continue to weaken, with in-room dining 41% below levels seen last year, and movie theaters have yet to make any strides with households apparently preferring the comfort of takeout and movies at home.
With cooler weather arriving, challenges will multiply in the restaurant sector, especially in northern states. In the latest October data, restaurant reservations (the seven-day moving average) in New York and Illinois were 63% and 57% below year-ago levels, respectively, and down 28.5% in Florida. Restaurant dining had surged around Labor Day--a temporary calendar effect. Data suggests the overall pace of people-facing activities has slowed in October.
While hotel indicators have improved since the severe plunge in April, occupancy rates remain depressed (see chart 8). The hotel occupancy rate for the week ended Oct. 10 was down by 29.2% year over year. Flying remains out of favor as well, with air traffic on Oct. 18 down 60% year over year (see chart 9).
Oil Prices Recover But Remain Below Break-Even As Rig Counts Remain Low
While the West Texas Intermediate oil price, at about $40, has recovered dramatically from crisis lows of $18.99 in April, it remains below estimated break-even prices of $45-$50, with rig counts modestly improving from an April trough.
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 10). Capacity utilization of raw steel production remains subpar, below both precrisis levels and its 2019 average, but has shown steady improvement since May (see chart 11).
Trade And Production Pick Up While Industrial Metal Prices And Rail Traffic Stabilize
As industries are warming to producing and shipping again around the world, trade and production have picked up meaningfully. The Baltic Dry Index--which measures changes in the cost of transporting various raw materials--has risen above its 2019 average since June on a pickup in demand across vessels (see chart 12). Industrial metal prices have stabilized around their 2019 average, much higher than at the height of the U.S. quarantine in April, and are now nearing pre-pandemic levels (see chart 13). Weekly rail traffic has also stabilized above its 2019 average and is close to rates seen before the recession (see chart 14).
The Housing Recovery Benefits From Pent-Up Demand
The silver lining for the U.S. expansion has appeared in the housing sector, which has had a V-shaped recovery, as mortgage applications and lumber prices clearly reflect (see charts 15 and 16). Mortgage applications have stabilized near a decade high, while lumber prices remain well above pre-pandemic prices. Lumber prices have been on a declining trend in recent months, giving some relief to builders.
That said, the spring in the housing market may face hurdles. Although pent-up demand from the delayed spring buying season, in addition to the increased demand from households looking for a first or second home (perhaps away from the close quarters in cities where the virus thrives), provides support, there is plenty of scope for a slowdown to a more sustainable pace in the coming months as virus-led roadblocks to labor market recovery persist.
Unemployment Benefit Claims Have Declined But Remain Elevated
Initial jobless claims for regular state benefits in the week ended Oct. 17 were 787,000--almost 4x the pre-pandemic level (see chart 17). Combined with those who are now in the extended benefits program (13 more weeks once the initial regular state benefits of 26 weeks expire) and the gig and contract workers under the Pandemic Unemployment Assistance program, the total number of individuals receiving unemployment benefits fell 2.4 million over a two-week period to 23 million in the week ended Oct. 3 (see chart 18). Continuing jobless claims, now corrected for California delays, show that 8.4 million were receiving those benefits, down by 1 million from the prior week. On a seasonally adjusted basis, that is 5.7% of the workforce (see chart 19).
Of those on regular state continuing claims, the insured unemployment rate from the weekly claims report is below average for red states (Republican-won states in the last presidential election) and above average for blue states (Democratic). Note that this is a different unemployment rate from the regularly quoted monthly unemployment rate but is still an important metric that may partly reflect differences in views on the trade-off between reopening and health. Red states may be more willing to reopen fully, leading to a lower unemployment rate than the national average. This may be one reason that the two sides in Congress can't see eye to eye on the next round of stimulus.
Job openings, as indicated by Indeed's job posting measure, are still well below normal nationally (see chart 20). A similar jobs demand measure from the Conference Board, called The Conference Board-Burning Glass Help Wanted OnLine, points to a city-versus-suburbs story. According to it, hiring activity has now returned to above pre-pandemic levels in the suburbs, while the city centers continue to experience recession-level hiring activity.
As Fed Chairman Jerome Powell said in his recent speech to the National Assn. for Business Economics, the risks of policy intervention are "still asymmetric": "Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth. By contrast, the risks of overdoing it seem, for now, to be smaller." We agree that additional fiscal policy support will be vital to ensure the recovery doesn't stall at a lower growth equilibrium.
All things considered, the real-time economic indicators point to an economy that is on the mend but at a decelerating pace. Elevated uncertainty about the pandemic and the scope and timing of fiscal stimulus has tilted risks to the downside for the economic outlook in the fourth quarter and beyond. The absence of a new stimulus package appears to have begun taking its toll on the recovery.
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.
This report does not constitute a rating action.
|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;|
|Research Contributors:||Debabrata Das, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai|
|Shruti Galwankar, CRISIL Global Analytical Center, an S&P affiliate, Mumbai|
|Arun Sudi, CRISIL Global Analytical Center, an S&P affiliate, Mumbai|
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