What economic recovery news should you be listening to?
June 24, 2020
- How will we know when the economy is recovering?
- Three most important road signs on the path to recovery.
- Can we speed up economic recovery?
The news has been like a seesaw lately--one day the economy looks like it’s up, another day it looks like it’s down. For example, we hear about a possible COVID vaccine and the stock market skyrockets. Then we hear about new unemployment claims and it drops down again.s. We knew the elevator business had its “ups” and “downs” but not the whole country! Sorry for the shameless Dad Joke but Father’s Day is still fresh in our minds ;-).
Many people are saying the economic recovery is full steam ahead and basically all set even before it happens. But how can we know with any certainty? What metrics should you really be paying attention to and when can you be sure that the worst is behind us? We are here to help with three key signs on the road to recovery. Let’s take a look
Sign 1: Unemployment numbers drop
After more than 40 million Americans filed for unemployment due to COVID, one of the biggest signs of an economic recovery will be when those Paychecks get back to work. As of May’s job report, it looks like we’re on the right track.
The unemployment rate peaked in April, hitting almost 15 percent, before coming back down to 13.3 percent in May. No one knows how long it will take us to get to the 50-year lows we saw last year, but as the unemployment rate drops from double digits it will be a clear sign that people are getting back to work.
Sign 2: Consumer spending increases
The conductor of our economic train, aka the consumer, hasn’t been out shopping lately. The longer it takes for regular folks like us to go out shopping, dine at restaurants, take vacations, stay in hotels, etc., the longer it will take the economy to bounce back.
After consumer spending dropped 14 percent in April, recent data showed that spending started to pick back up as states reopened and consumers got more comfortable going out again. Retail sales surged 17 percent in May, marking it the biggest jump ever recorded!!!!
According to CNBC, “clothing and accessories stores reported the biggest percentage gain at 188% while sporting goods, hobby, musical instruments and bookstores rose 88.2%.” And with spending on food and drinking services also increasing 29 percent in May, economists are still expecting to see the biggest annualized GDP in the second quarter that the US has ever seen.
Sign 3: State and local spending is balanced
The unemployment rate and consumer spending are heading in the right direction but one of the remaining areas of economic uncertainty is how local and state governments will adjust after losing so much tax revenue. Wisconsin alone could lose $2 billion in tax revenue, which could cause the state to cut public services or raise taxes to make up the difference. It's a true rock and hard place situation.
Congress has passed several stimulus bills, but one area they’ve yet to address is how to help state and local governments so they don’t have to raise taxes or cut back on important public services. Balanced budgets across the country are a good sign of a balanced recovery for us all.
What should you NOT pay attention to?
Everyone wants the economy to recover, so it’s no surprise we hear some new factoid every other day and a new data point that suggests the worst is behind us. However, it’s important to know what facts to listen to and it’s important to know what facts are being manipulated to make the economy look better than it actually is.
The rise in wages over the past couple months is a prime example of facts that can be misconstrued. You may have seen news about a recent spike in wage growth, which suggests Paychecks must be recovering nicely. But when you take a closer look , you’ll notice that wages rose because job losses were concentrated around lower-wage workers, making the overall average look higher than it otherwise would have been.
What can be done to speed up the recovery?
It’s not that easy, but the absolute best sign of an economic recovery will be when we get a vaccine for COVID. This will likely send consumers running back to stores and places of business. Moreover, the stock market will likely march back to record-high levels once again
But while dozens of companies work on a vaccine breakthrough, the government has already been hard at work supporting the economy through stimulus bills and the Fed’s financial support. Hundreds of billions in small business loans, checks to individuals, and increased unemployment benefits should keep the economy from seeing the “D” word.