At a Glance
- Is the Q2 rebound running out of steam?
- The road to economic recovery may depend on what activities consumers are willing to engage.
We know from the monthly employment data and weekly unemployment claims data that the U.S. economy started to bounce back in Q2 2020 from the pandemic-induced shutdown. We will not get a comprehensive reading on the magnitude of the bounce until the Q2 real GDP report is released at the end of July. This is only a preliminary report with very limited data for the month of June, so it’s possibly subject to substantive revisions. To get a more up-to-date look at how the recovery is going, we will focus on three key data points that can be observed daily with very short lags and that were at the center of the shutdown.
We have observed airplane passengers passing through U.S. security check points, examined the number of people dining in restaurants and used U.S. credit card data to track spending. Unfortunately, these data points indicate the Q2 bounce-back could be stalling with a new surge in virus cases in many states.
Air travel was one of the first sectors hit hard by the pandemic as nations closed their doors to international travelers, domestic business travel declined sharply and tourists stopped flying.
Prior to the pandemic, over two million people passed through Transportation Security Administration (TSA) checkpoints each day in the U.S. By April, the number had fallen to below 200,000, or a mere 10% of pre-pandemic travelers. In July, the number was running close to 750,000 passengers a day, or 40% of pre-pandemic levels, but the uptrend has flattened.
Bars and restaurants were shut down in most U.S. states in March. Using data on the number of seated diners from the online reservation service OpenTable, one observed the year-over-year change in April moving to -100%, reflecting the complete shutdown.
The recovery began in May as some restaurants were allowed to reopen outdoor seating. Some states allowed indoor dining in June, and the number of diners very briefly recovered to 50% of pre-pandemic levels.
However, as the virus started to surge again in some states, diners became more reluctant to venture out, and seating dropped off in July to around 60% of pre-pandemic levels.
Credit Card Spending
Retail sales make up about two-thirds of U.S. GDP, so studying spending patterns provides insights into a significant portion of the economy.
Opportunity Insights, a group of academic and other researchers from a variety of institutions that is based at Harvard University, pulls together credit card data and separates it by income groupings based on postal zip code and average income data.
There are three distinctive observations from the credit card data. (1) The lowest levels of spending were reached in April and the bounce back was in full swing in May. (2) Low-income consumers were more likely to increase spending much faster than high-income consumers, who are displaying extremely cautious spending behavior patterns. And, (3) the bounce back stalled in July, as virus fears began increasing again and some re-opening plans were delayed or even temporarily reversed in some states.
The daily data we are tracking from airlines, restaurants and credit card spending indicates the economic recovery may be stalling. We are entering a difficult new phase where the economic recovery is now heavily dependent on the activities in which consumers are willing to engage. That is, there is only so much that fiscal and monetary policy can do to accelerate the recovery. Instead, we need to monitor and appreciate that consumer behavior patterns are deeply influenced by how they react to the virus as it spreads in their state.
We also note that the V-shaped equity market recovery was driven by the $3 trillion of asset purchases by the Federal Reserve. The Fed can support a recovery in asset prices, but this does not translate to the economy. That is, a V-shaped economic recovery was always considered too optimistic by most analysts, including us, even with massive policy stimulus.
The V-shaped outlook was based on three faulty assumptions: (1) that there would be no lasting behavioral changes by consumers and businesses, (2) a mis-analysis of how fast massive fiscal and monetary stimulus would bring back economic activity, and (3) a dismissal of the epidemiological analysis by the scientific community that warned repeatedly of more trouble down the road.
Realistically, a return to pre-pandemic economic activity could take many years.