Small signs of life return to US economy

An increase in traffic and a fall in panic purchases at the supermarket are among the signs that Americans are taking their first cautious steps back to normality after coronavirus flatlined the economy.

There is still a long way to go after months of lockdown. But the low for the “two-month recession” probably occurred in April, says Douglas Porter, chief economist at BMO Financial Group. 

Nearly every state has begun to reopen, even though the number of cases continues to rise in some.

And while a second wave is possible, consumers are feeling more confident than they were in mid-March if panic buying is any guide. 

Purchases of toilet paper and disinfectants have declined 63 and 83 per cent, respectively, according to data from Nielsen.

Line chart showing panic-purchase have come down from peak levels

Sales of pantry items such as soup, pasta and frozen pizza have also started to return to pre-peak levels. One exception to the trend is hand sanitiser purchases, which remain elevated. 

Retailers were among the hardest hit by the pandemic as stores shut across the country and online delivery systems struggled to keep up with demand. But visits to retailers have begun to increase as stores reopen.

The fastest recoveries have been to clothing and accessories stores which recovered 607 per cent since their April 12 low. Entertainment and hobby retailers were a close second, according to data from Unacast

Southern states such as Alabama and Mississippi, as well as those in the Midwest such as South Dakota, saw the biggest increases in visits to retailers in May.

The Gulf region’s beach visits over Memorial day weekend were 71 per cent higher than a year ago, boosting states like Alabama and Louisiana.

Line chart of Visits to retailers, thousands showing Americans begin return to retailers

Jobs that involve the least contact with others are also early indicators of activity.

An index of contact-intensity from the St Louis Fed ranked industries such as logging, securities trading and subsections of manufacturing as the least contact-intensive.

Indeed, the New York Stock Exchange in Manhattan reopened its doors to traders after an extended shutdown, and business activity in the Texas Manufacturing Outlook Survey increased 34 per cent from April to May, though it remained negative. 

Americans are hitting the road again, too. Truck traffic was down only 5 per cent from this time last year, compared with being down 13 per cent at the end of April, according to data from MS2.

Car sales were up 24 per cent on average from the second week in May to the third, according to foureyes. The seven-day average for total flights picked up more than 50 per cent from its low in mid-April, according to Flightradar24

Column chart of New auto sales (7-day rolling average, thousands) showing US car sales started picking up across the nation

Whether or not the economy has turned a corner, it seems to have stemmed the bleeding. New weekly unemployment claims fell 46 per cent from their peak in early April.

The weekly economic index, an indicator that was produced by Fed and Harvard economists at the beginning of the crisis to monitor real-time economic activity, slowed its decline and to a relative plateau. 

Nonetheless, the recovery will take time. More than 43m Americans were unemployed or underemployed as of April. The official unemployment rate, 14.7 per cent, is the worst since the Great Depression.

Consumer spending, by far the largest factor in the US recovery, decreased by 3.6 per cent from March to April — the largest monthly drop on record — and sentiment surveys do not yet indicate an upswing in confidence.

Line chart of Initial jobless claims, millions showing New jobless claims stop the bleeding

For many services, the income lost during the lockdowns cannot be made up after the fact, even if initial pent-up demand provides a boost. 

Restaurants and stores must comply with social-distancing rules which limit their capacity. Large gatherings such as concerts and live events are still prohibited in most areas.

Travel and leisure still suffer from bans on movement. Industries such as arts and entertainment, accommodation and food services will be the slowest to catch up, Mr Porter says.

And just because restrictions are lifted does not necessarily mean people will feel safe returning to normal life. Mobility data show that many began to self-quarantine well before official government lockdowns, and the trend is likely to continue after they are lifted.

“Will we get back to 100 per cent this year or even next year? Probably not,” Mr Porter says.