While economic growth galloped to produce the strongest three-jump month jump in U.S. history in July, August and September, more critical to the recovery now is how much of that momentum survives the possible upheaval of next week’s election and the spread of coronavirus infections.
Indeed, the rebound appears increasingly on shaky ground, with economists paring back growth forecasts through the rest of the year, coronavirus infections surging, and any U.S. government response effectively on hold until after next Tuesday’s election is decided – whenever that may be.
Meanwhile, the rapid rise in new cases has prompted some local governments to roll out new restrictions. The rules aren’t as extensive as they were in March and April. They may not need to be: As health risks rise, people tend to hunker down on their own.
For instance, even as high-frequency estimates of foot traffic to retail stores has so far remained roughly steady, according to cellphone tracking data compiled by Safegraph here and Unacast here, a broader index of the recovery from Oxford Economics headed south.
Oxford here index slid a full percentage point in the latest week on reductions in travel and some aspects of consumer spending – and dipped notably in several presidential battleground states. An index of seated restaurant diners, based on data from reservation site OpenTable here, also dropped the last two weeks after steady growth earlier in the fall.
High-frequency data on employment, meanwhile, was mixed.
Indices of job openings from Chmura www.chmuraecon.com/blog and the Indeed Hiring Lab both rose, a sign of ongoing employment improvement. The number of workers punching in for shifts increased across a set of industries, according to data from UKG here, and has continued to “soldier on” with average growth over the past six weeks of 0.6% said Dave Gilbertson, UKG vice president for strategy and operations.
Yet among small businesses whose time is managed by Homebase joinhomebase.com/data, the number of firms open, employees on the job, and hours worked have all declined for three weeks running. And a Dallas Fed survey used to monitor the labor market in between official monthly job reports registered recent declines in both the share of people working and those looking for work.
The number of new filers for unemployment fell for the week ending Oct. 24, but at 751,000 remains roughly five times the pre-pandemic level, according to calculations from Indeed.
Economists spent the summer and early fall routinely boosting their expectations for growth in what turned out to be a record-setting third quarter. They are now putting that bit of history in the rear view mirror and spinning a more cautious tale for three month period that started Oct. 1.
David Wilcox, former head of research at the U.S. Federal Reserve and now a senior fellow at the Peterson Institute for International Economics, said the 33.1% annualized economic growth seen in the last quarter was driven largely by even earlier events, when the economic restrictions imposed in March and April were then lifted in May and June.
To his mind, the improvement has stopped. Money that poured from the U.S. Treasury into people’s bank accounts from April to July, as part of a pandemic rescue program totaling more than $3 trillion, is beginning to run out. Case in point: Thursday’s report on gross domestic product showed income available for spending or saving dropped 13.2%, or $636 billion, over the last three months.
“It is plausible there may have been little or no growth in September,” Wilcox said this week. “The virus is surging to new highs and that is going to inhibit any kind of substantial or complete economic recovery.”
Between the gridlock over U.S. government policy and the intensifying health crisis, ING chief international economist James Knightley estimates the fourth-quarter growth rate may slow to as little as 1%. In effect, that would mean the recovery had stopped, and the country’s economic hole was getting deeper compared with its pre-pandemic trajectory.
“November could be troubling. December could be very tough…and that could carry forward,” he said. “The risks are really starting to move in that direction.”
The big unknown: whether Tuesday’s vote produces a clean result and a unified government, or more division.
“If Congress sits on its lame-duck hands through year-end, things could get ugly quickly,” said Oxford chief U.S. economist Gregory Daco.