For six months, It may feel like an eternity, but after states began enacting stay-at-home orders, that’s how long it’s been. We now know that these efforts have been at least partially effective in slowing Covid-19’s spread. They have also created an economic downturn that has been deeper than any documented recession since at least the Great Depression.
Now, businesses, schools, and colleges are opening up again in many ways, but life is not completely back to normal. Students learn through hybrid models, rotating in person between classes and remotely on the Zoom. In most states, masks are still required in public. Restaurants run at a lower capacity. Instead of real fans, football season has kicked off with artificial crowd noise piped into stadia. What’s coming next? When our jobs, companies, and resources are completely restored, how much more do we have? CNN Market and Moody’s Analytics’ Back-to-Normal Index reports that the economy was running at around 76 per cent of where it was before the pandemic as of last week.
This is much better than the worst days when economic growth reached a low point in April. Bad news: We have a long way to go. The Back-to-Normal Index has dropped marginally in the past week. That is, the recovery could be going in the wrong direction now. The Back-to-Normal Index, which consists of 37 economic indicators at its lowest point in April, reported that the US economy was running at around 59 per cent of what it was before the early March pandemic. It changed steadily in May and June. As coronavirus cases began to moderate, unemployment claims began to decline, and some states began to lift business restrictions.
But the momentum stalled after that. In several areas, as coronavirus cases surged, states backtracked on reopening plans. The index suggests that the economy has essentially gone sideways over the last three months. Until slumping again to 76 per cent, it hit a post-pandemic high of 80 per cent over Labor Day weekend. I think the Back-to-Normal Index is pretty simple, suggesting this is not a V-shaped rebound, said Mark Zandi, Moody’s Analytics chief economist. We’re all a long, long way from getting back to normal, six months in. For millions of Americans and corporations, an economy running well below “normal” translates into misery.
Six months after the recession, weekly unemployment insurance claims are now nearly four times greater than they were before the pandemic. At that amount, in records going back to 1967, they still remain higher than every other time before the pandemic. The transport, entertainment, and hospitality sectors have been hit especially hard. Restaurants are seating 35% fewer clients than before the pandemic. Hotel occupancy is down 30 per cent. Since early March, airline traffic, as measured by travelers via TSA checkpoints, has fallen by around 70 per cent. And although some cinemas have reopened, they are hardly operational: box office receipts are still down by around 90% from where they were before the pandemic.
Just a few bright spots remain against this gloomy backdrop: stocks, housing, and e-commerce. Compared to other areas of the economy, the S&P 500 made a relatively fast recovery, hitting an all-time high in August before marginally withdrawing in September. Overall, only five stocks were the key drivers of the gains: Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Google’s Alphabet (GOOGL), and Facebook (FB). A recovery in the stock market helps the wealthy disproportionately. According to the Federal Reserve, the richest 10 per cent of American households owned 87 per cent of all stocks and mutual funds as of the first quarter of 2020. Millionaires such as Jeff Bezos, Bill Gates, Mark Zuckerberg, and Elon Musk have done particularly well because much of their wealth is tied to the company’s fortunes.
Meanwhile, in some parts of the world, the housing market has boomed, powered by record-low interest rates and new work-from-home policies that force some city dwellers to search for affordable homes outside urban areas. According to Zillow, in Maine, which ranks number one on the Back-to-Normal Index, home prices are up more than 7 per cent from a year ago. That said, how much longer the strength of the real estate market will continue is uncertain. During the week ending September 11, mortgage applications, which contributed to most of the recovery earlier in the summer, dropped.
Finally, one more spot of light: e-commerce has become the ray of hope in this era. Retail sales have already exceeded their pre-pandemic pace, as monitored by the Commerce Department. But the V-like turnaround was largely powered by one category: non-store distributors, including online shopping. The service industry and brick-and-mortar retailers are still operating far below their pre-pandemic levels, particularly clothing stores. Many are expected to shut down. Recently, Yelp announced that nearly 163,700 businesses on the reviews site had closed since March 1, as of August 31. Around 98,000, or 60% of those, said they had shut their doors for good.
The economic recovery is expected to be a long struggle, Zandi said, predicting that the US economy will still be down by about 10 million jobs by the end of the year from its pre-pandemic high. He doesn’t think that until the second half of 2023, America will return to full employment. Two things rely on that sobering forecast: the virus does not worsen, and fiscal policy comes to the rescue. The outlook is not nice on any of those fronts right now. Coronavirus cases are increasing again in the US after weeks of declines, only ahead of the colder weather and flu season. And senators remain locked down on another economic stimulus bill in a stalemate.
On Friday, Goldman Sachs economists cautioned that if lawmakers fail to approve additional stimulus, they would have to downgrade their economic growth outlook in the fourth quarter. Similarly, Moody’s Analytics expects the Back-to-Normal Index to begin backsliding without a fiscal rescue plan providing more funding for small businesses and the unemployed. It’s going to be much easier to get from 60 per cent to 80 per cent than to get back to 100 per cent, now the hard work starts, Zandi said.