As soon as the economy began to turn south, we got visual images of what the graph of a recovery might look like. The optimistic “V.” The pessimistic “L.” The meh “U” The dreaded double-dip “W.” As some data begins to come into focus, we can make the argument, at least for now, for the more colorful Nike Swoosh recovery: rapid drop, steady but not spectacular recovery.
Figure 1 provides a series of recovery indicators along with a pretty non-scientific composite indicator, shown in red. All indicators give readings on a weekly basis, except for employment figures which come out monthly, from a survey taken during the week that has the 12th day of the month. All indicators are presented as indices, with each weekly reading indicates the percentage of activity in that sector compared to the first week of March. The definitions and sources are given at the end of the article.
The red all-indicators composite line bears a resemblance to the Nike logo. The sectors were chosen to represent the kinds of discretionary activity that would tend to drop during the economic shutdown. So we see sharp drops in all activities and a comparatively large drop in employment. Things bottom out late March to mid-April and begin a steady climb back toward their March 1 level.
(June employment is shown at 92.6 percent of the March 1 level. This 7.4 percent drop, added to the existing 3.8 percent pre-pandemic unemployment level , indicates an unemployment rate of 11.2 percent. The Employment Security Department estimates the June rate to be 9.8 percent. A drop in labor force participation in the past few months–not a good thing–accounts for the difference.)
Now that many indicators are within 10 percent of their March level (not surprisingly, the entertainment and hospitality sectors are still far from that) where does the red line go? Will it continue its rise? Will the remaining unemployed members of the workforce gradually return to their old jobs, or find new ones? Will the velocity of money increase such that the big piles of cash in the banking system make their way through the economy, multiplying their impact as they go? Will entrepreneurs devise substitutes for the activities that must be avoided?
Or will the red line dip down? Will the recent spikes in coronavirus cases lead to new shutdowns and new employment cuts? Will the delays in the return to offices ring the death knell for more restaurants and stores? Will newly reopening businesses repair the damage by getting by with fewer employees than they had before? Will unemployed people have a hard time transitioning to new sectors from ones that are not bouncing back?
All these dynamics, and many more, will determine the direction and slope of that red line in the next few months.
The Seattle area has been fortunate (knock on wood) to have avoided the big spikes in coronavirus cases that have appeared in other parts of the country. So while some new cautions have appeared in recent weeks, and some reopenings have slowed, we have not had to go backwards. The key, as the Indexer has noted several times, is the pace at which consumers get off the sidelines and begin to spend the money building up in their bank accounts. This will require confidence in the health of both the health environment and the economic environment.
All spending. Based on credit and debit card data collected by Affinity Solutions and compiled by Opportunity Insights. Covers all transactions involving credit and debit cards. King and Snohomish Counties
General merchandise spending. Based on credit and debit card data collected by Affinity Solutions and compiled by Opportunity Insights. Covers transactions at general merchandise (such as big box) stores and apparel stores. King and Snohomish Counties.
Gasoline production. Data on refining of gasoline on the West Coast. Compiled by the U.S. Energy Information Administration. Storage capacity is limited, so refining data closely tracks consumption data, with a small lag.
Driving Directions. Data on number of requests for driving directions on Apple Maps. King County.
Employment. Estimated employment from U.S. Bureau of Labor Statistics monthly survey of employers. King and Snohomish Counties.
Business applications. Data on number of applications for business licenses. Compiled by the U.S. Census Bureau. Washington State.
All indicators. An unweighted average of all six indicators.