Our national Recovery Tracker points to a premature plateauing of the recovery. The tracker only rose 0.3ppts to 76.5 in the week ended July 3, supported by a surge in business applications and firming financial conditions. A plunging health index, the first decline in the demand tracker, and a second decline in the employment component point to significant downside risks.
An unexpected 43% jump in business applications sparked a 9.4ppts increase in the production tracker. While encouraging, this starkly contrasts with a concerning decline in the number of small businesses open.
While financial conditions remained loose despite a deteriorating health situation, the employment pullback and much more reserved demand growth are worrisome. Consumers are proving less mobile and more cautious with outlays on retail, restaurants, and other face-to-face services.
The State Recovery Trackers confirm that the rebound lost momentum in late June, with 15 states recording slower weekly rises and 14 more reporting outright weekly drops.
With coronavirus cases growing in 39 of the 50 states – accounting for nearly 90% of national GDP – virus fear and reimposed social distancing measures in many states raise the risk of a renewed slump in activity.
While it would be premature to call for a double-dip recession, this recovery is clearly at risk from a mishandled health situation. Policymakers across the country have an active role to play in containing the virus and ensuring the nation avoids looming fiscal cliffs from the expiry of unemployment benefits, PPP funds running low, and state and local budgets being cut to the bone.