Six months. It may feel like an eternity, but that’s how long it’s been since states started enacting stay-at-home orders.
We now know those actions were at least partially successful in slowing the spread of Covid-19. They also triggered an economic downturn deeper than any recession on record since at least the Great Depression.
Now, in many places, businesses, schools and colleges are reopening, but life is not entirely back to normal. Students are learning through hybrid models, alternating between classes in person and virtually on Zoom. Masks are still required in public in most states. Restaurants are operating at reduced capacity. And football season has kicked off with simulated crowd noise piped into stadiums in lieu of actual fans.
What comes next? How much further do we have until our jobs, businesses and finances are fully recovered?
The Back-to-Normal Index created by CNN Business and Moody’s Analytics estimates that as of last week, the economy was operating at about 76% of where it was before the pandemic. (Explore the index here.)
The good news: That’s much improved from the darkest days when economic activity hit a low point in April. The bad news: There’s still a long way to go.
In the latest week, the Back-to-Normal Index fell slightly. In other words, the recovery could now be heading in the wrong direction.
A stalled recovery
At its lowest point in April, the Back-to-Normal Index, which is comprised of 37 economic indicators, estimated the US economy was operating at about 59% of where it had been before the pandemic in early March.
It slowly improved in May and June as coronavirus cases started moderating, unemployment claims began falling and some states started lifting restrictions on businesses.
But after that, the momentum stalled.
As coronavirus cases surged in some places, states backtracked on reopening plans. For the last three months, the index shows the economy has largely gone sideways. It reached a post-pandemic high of 80% over Labor Day weekend before slumping again to 76%.
“I think it’s pretty clear the Back-to-Normal Index indicates this is not a V-shaped recovery,” said Mark Zandi, chief economist at Moody’s Analytics. “Six months in, we’re still a long, long way from getting back to normal.”
An economy operating that far below “normal” translates into hardship for millions of Americans and businesses.
Six months into the crisis, weekly claims for unemployment benefits are still about four times higher than they were before the pandemic. At that level, they also remain higher than any other period prior to the pandemic, in records going back to 1967.
The travel, leisure and hospitality industries have been hit particularly hard. Restaurants are seating 35% fewer customers than they did before the pandemic. Hotel occupancy is down 30%, and airline travel, as measured by travelers through TSA checkpoints, is down about 70% since early March. And although some movie theaters have reopened, they’re barely operational: box office sales are still down about 90% from where they were before the pandemic.
Against this dismal backdrop there are only a few bright spots: stocks, housing and e-commerce.
The few bright spots
Unlike other parts of the economy, the S&P 500 made a relatively quick comeback, reaching an all-time high in August before retreating slightly in September. Overall, the gains have been driven mainly by just five stocks: Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Google owner Alphabet (GOOGL) and Facebook (FB).
A rebound in the stock market overwhelmingly benefits the rich. As of the first quarter of 2020, the wealthiest 10% of American households owned 87% of all stocks and mutual funds, according to the Federal Reserve. Billionaires like Jeff Bezos, Bill Gates, Mark Zuckerberg and Elon Musk have fared particularly well because much of their wealth is tied to company fortunes.
Meanwhile, the housing market has boomed in some pockets of the country, driven by record-low interest rates and new work-from-home policies pushing some city dwellers to look for cheaper homes outside urban areas. In Maine — which ranks number one on the Back-to-Normal Index — home prices are up more than 7% from a year ago, according to Zillow.
That said, it’s unclear how much longer strength in the real estate market can continue. Mortgage applications, which led much of the recovery earlier in the summer, fell during the week ending September 11.
Finally, one last bright spot: e-commerce. Retail sales, as tracked by the Commerce Department, have already surpassed their pre-pandemic level. But that V-like recovery has been driven mostly by one category: nonstore retailers, which includes online shopping. The services industry and brick-and-mortar retailers — particularly clothing stores — are still operating well below their pre-pandemic levels, and many are expected to shutter.
Yelp recently reported that as of August 31, nearly 163,700 businesses on the revews site had closed since March 1. Of those, about 98,000, or 60%, said they’ve shut their doors for good.
“The more businesses that fail, the longer it will before we get back to normal,” Zandi said.” it’s a scarring effect on the economy, a structural problem that will become a lot worse.”
Where we go from here
The economic recovery is expected to be a “long slog,” Zandi said, estimating that by the end of the year, the US economy will still be down about 10 million jobs from its pre-pandemic peak. He doesn’t think America will return to full employment until the second half of 2023.
That sobering forecast depends on two factors: the virus doesn’t get worse and fiscal policy comes to the rescue.
Right now, the outlook isn’t great on either of those fronts. After weeks of declines, coronavirus cases are on the rise again in the US, just ahead of colder weather and flu season. And lawmakers remain locked in a stalemate on another fiscal stimulus package.
On Friday, economists at Goldman Sachs warned that they might have to downgrade their forecast for economic growth in the fourth quarter if lawmakers fail to approve additional stimulus.
Likewise, Moody’s Analytics expects that without a fiscal rescue package, including more support for small businesses and the unemployed, the Back-to-Normal Index will start backsliding.
“Getting from 60% to 80% is going to be a lot easier than getting back to 100% — now the hard work begins,” Zandi said.