Closing in on Pre-Pandemic Numbers
The economy has faced a long road to equilibrium, considering the way the pandemic has pounded it over the last 15 months. But recent reports are all bringing positive news, with many growth indicators back on track and most all showing signs of recovery. If anything, the economic recovery has been faster than expected, though experts say it is lopsided at the moment, with some supply chains still held up and some holes in the workforce still needing to be filled. Since the world has never experienced such a pandemic in modern times, the jury is still out on what long-reaching effects it will have, and whether this positive trajectory will keep up its current pace.
Signs of Economic Recovery
At the moment, the economic recovery news is good. Considering where the country was a year ago, or even six months ago, the news that the entire economy has only 1% remaining to recover and that 12 out of 22 sectors are now back to pre-pandemic conditions is amazing. BMO Economics Report “The latter set is led by finance and insurance, with real output having advanced more than 7% since before the pandemic (2019 Q4). This was an industry that proved very amenable to working remotely and is benefiting from strong housing and equity markets, along with lots of saving.” The housing market is booming, and financial and insurance companies are along for that ride.
The following sectors also buoyed this recent recovery: professional, scientific, and technical services, information, durable goods manufacturing, and administrative and waste management services. These are all back to their pre-pandemic levels despite the fact that many of their supply chains have been broken. Riding on the coattails of the overall economic rebound, these sectors led the way in quarter one to get the country within 1% of its complete recovery number.
Two other sectors that experienced phenomenal growth were the arts, entertainment, and recreation sector, with an 8% increase, and accommodation and food services, which posted 4% gains. But because these two sectors struggled so much in the pandemic, they still have a long way to go for recovery.
Reasons Behind the Good News
Besides the Boom Economic Report, there are other signs of positive movement in the country. According to WSJ, “Nonresidential fixed investment, a proxy for business spending, rose at a seasonally adjusted annual rate of 11.7% in the first quarter, led by growth in software and tech-equipment spending, according to the Commerce Department.” As companies are getting back on their feet, they are acquiring more equipment as well as software and technology to get their businesses up to speed after the long strange year.
“Business investment has really been an important engine powering the U.S. economic recovery,” said Robert Rosener, senior U.S. economist at Morgan Stanley. “In our outlook for the economy, it's certainly one of the bright spots.”
Average people in the country are also helping to spur the recovery. They are tired of staying home; they have stimulus money, and they are ready to spend it. However, The New York Times reported that "consumer prices rose 4.2 percent in April from a year earlier, the biggest jump in more than a decade.” This could be an indicator that the recovery will not be as easy as it currently seems.
Not everyone is ready to call the recovery a done deal. “It is an exaggeration to say Americans are rich and that they can draw on their incomes to spend for months to come and support a continued robust expansion of the economy,” according to Chris Rupkey, chief economist at FWDBONDS. “Americans have lost $3.6 trillion in income since March. It’s a big number and a big deal.” Rupkey thinks the country is headed for a dramatic slowdown, from the 6.4% growth to as low as 2%.
Because of some of the mask mandates and other restrictions that are still in place, the second quarter is still not full speed ahead for the recovering economy, And there is still a mismatch with supply and demand and staffing businesses because the country came out of most of the pandemic restrictions at a relatively fast pace and needs to catch up. The labor supply will continue to be a major player in the recovery. If people decided to retire rather than wait out the pandemic at work, or families got used to being at home with kids and realized they can survive on only one income, the worker shortages could persist.
There is also still some question about stimulus checks and government help for the states. Many states are waiving the last few months of stimulus hoping to get their workers back to work. “This isn’t a typical economic recovery, it is the fastest rebound in economic history and it no longer deserves emergency stimulus from Washington,” Rupkey said. “Policymakers in Washington are misreading the economic tea leaves and their policies are not normalizing as quickly as the economy is.”
There are still as many questions as there are answers, although the overall movement is definitely positive. Experts are watching consumer expectations and business expectations to determine the trajectory of the economy from this point.
“During normal times, you can just track a handful of indicators to know how the economy is doing,” said Tara Sinclair, an economist at George Washington University who specializes in economic forecasting. “When big shifts are going on, you’re tracking literally hundreds of indicators.”
Despite the uncertainty of last year, one thing is clear. The economy is getting back to its pre-pandemic self. Although still waiting for the arts and entertainment industry and the hospitality industry to catch back up after their catastrophic year, the rest of the country is making its move toward recovery. Although not out of the woods, if the country takes its recovery one day at a time, the positive strides made in Q1 should continue.