Economic recovery ‘being tested daily,’ says NRF’s chief economist

Indicators suggest that the economy has begun to recover as businesses reopen from the pandemic, but it’s uncertain how steadily the comeback will continue.

“Optimism about the economy and retail spending is being tested daily with the spread of the coronavirus,” said Jack Kleinhenz, chief economist, National Retail Federation. “Big questions are looming, and we are all grappling to discern what incoming data is telling us about the health of the economy and consumers. Depending on the data selected, the answers are not entirely clear.”

A key question is whether the pace of growth and momentum will carry forward over the next few months, according to Kleinhenz.

“Based on quarterly and monthly data, the U.S. economic recovery continues despite elevated COVID-19 cases,” he said. “But in examining weekly data, the pace of improvement appears to be slowing. Could it be that we are at or heading back to the same spot we were at two months ago?”

Kleinhenz’s remarks came in the August issue of NRF’s Monthly Economic Review, which said monthly indicators showed the economy improving in May and June, but more frequent data showed the pace of recovery flattening by mid-July.

Economists traditionally look at monthly and quarterly numbers to gauge the status of businesses and consumers. But the release of that data lags weeks behind when it is collected. And with the situation changing rapidly since the outbreak of the coronavirus early this year, more frequent information has been needed to keep up. In response, the Federal Reserve and others have begun tracking some indicators as often as weekly.

Consumer spending was up 8.2% in May, for example, ending two consecutive months of decline, and up another 5.6% in June. Meanwhile, retail spending as calculated by NRF – excluding automobile dealers, gasoline stations and restaurants to focus on core retail – was up 4.9% in June. Monthly numbers for July are not available yet.

But the Federal Reserve Bank of New York’s Weekly Economic Index – a composite of indicators – worsened from -6.65% on July 18 to -7.24% as of July 25, with officials citing a decrease in retail sales. The weekly Mobility and Engagement Index from the Federal Reserve Bank of Dallas also showed the economy leveling off in mid-July.

In the labor market, 4.8 million jobs were added in June as the unemployment rate ticked down to 11.1% from 13% in May. The monthly jobs data, however, was collected before the recent resurgence in COVID-19 cases. By contrast, weekly data showed that 1.4 million initial unemployment claims were filed the week of July 18. That was a rise of about 100,000 from the week before and reversed a steady decline in claims since a peak of 6.9 million the last week of March.

While many of the weekly reports initially agreed with the monthly data and “showed the economy on a good start down the recovery runway, they now suggest that the economy is moving sideways,” Kleinhenz said. “Time will tell, but the bottom line is that the economy is far from being out of the woods. The question is whether it is re-entering the woods.”