After Devastating Economic Contraction, Glimmers of Growth Emerge
Daily and weekly data suggest a recovery might be brewing, though its strength is unclear. After Devastating Economic Contraction, Glimmers of Growth Emerge
There are signs the economic contraction caused by the pandemic, the steepest since the Great Depression, has bottomed out and a tentative recovery may be under way.
Though government data show record monthly drops in retail sales and manufacturing production in April, in a fast-changing environment new trends often appear first in private daily and weekly data. And although they are less reliable and comprehensive than government figures, these figures are showing some signs of a turning point.
For example, map requests on Apple Inc. devices fell 50% throughout the country between mid-January and the week ended April 9, but they have steadily climbed since then and are now down just 20%. While driving doesn’t necessarily equate to spending, retail visits show the same trend, according to Unacast, a mobility-data analytics company: off more than 50% in mid-April from a year earlier, but down just 32% this past week. Real-estate brokerage Redfin Corp. said home-buyer demand as measured by customers contacting affiliated agents, after plummeting by one-third, is now above prepandemic levels.
Some companies also report a turning point. On May 7, Uber Technologies Inc. said rides had risen for three straight weeks, and were up more than 40% from the trough in large cities in Georgia and Texas, which are starting to reopen businesses shut down by the coronavirus pandemic. Fast-food chain Wendy’s Co. reported that same-store sales in the week ended May 3 were down just 2% from a year earlier. They were down 26% in the week ended April 5. (Both figure were aided by the introduction of breakfast in early March.)
Of course, rising sales aren’t much comfort from a base of zero. A case in point: According to OpenTable, seated diners at affiliated restaurants in the U.S. had decreased 100% by April 9. The drop had “improved” to 95% by May 14. That clearly isn’t a level of activity that many restaurants can survive.
Still, a rise, no matter how low the starting point, is important: It’s what marks the end of a recession. A recession is a significant decline in activity across the economy, according to the National Bureau of Economic Research, which dates business cycles, and a recovery begins when activity turns up.
This cycle is especially unusual. In prior recessions, employment, spending and production declined gradually month by month, accumulating to a substantial drop. This downturn began with a sudden and historic collapse as people self-isolated or were ordered to stay home. Activity was bound to resume as those orders were lifted. That helps explain why stock markets began rallying in late March. Oil prices are also signaling a revival of global growth: They have doubled since the end of April.
Official data may not show much, if any recovery, in May from April, but a rise in June is quite plausible. If that growth is sustained, this economic contraction could go on record as the deepest since the 1930s, yet also the shortest, lasting as little as two or three months. Postwar recessions have lasted six to 18 months.
There are huge caveats. First, these private indicators may not translate into measurable increases in spending, and if they do they could turn out to be just a blip, a common occurrence in past recessions. If the current, gradual reopenings trigger an upsurge in infections, local authorities could quickly close down businesses again, snuffing out the nascent recovery.
The second is that the data say nothing about how strong the recovery will be: Economic activity could rise for a few months and then flatline. One troubling sign: In the week ended May 9, nearly three million more people filed claims for unemployment insurance, suggesting job losses may not have hit bottom.
Employee hours tracked by Homebase, which provides scheduling software to small businesses, were down 49% from a year earlier in the week through Wednesday, not much of an improvement from 63% in early April. Even once every state has reopened, many people will likely curb going out until a vaccine is available.
In countries that are ahead of the U.S. in the pandemic, the lessons are mixed. In China, retail sales—which were down 20.5% from a year earlier in January and February—were still down 7.5% in April. On the other hand, vehicle sales and industrial production are both back to their prepandemic levels.
“They are recovering, but they are a long way from anything that resembles full health,” said Donald Straszheim of Evercore ISI. Similarly, mobility data show that activity in South Korea is still well below prepandemic levels, and the government has delayed the reopening of schools by a week after the discovery of a new cluster of cases connected to nightclubs and bars in Seoul.
Yet both countries are less than three months past the peak in their pandemics, too soon to give up on a normal, full recovery. Similarly, the lack of precedent makes it hard to predict with confidence how strong the U.S. recovery will be. Still, the evidence is growing that there will, at least, be a recovery.
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