Recovery Takes a Step Back in March
Peter Bernstein, Vice President, bernstein@rcfecon.com, 312-431-1540 x1515
Despite the accelerated pace of vaccinations and the steady drop in Covid-19 deaths, the economic recovery took a step back in March, with the RCF Recovery Index falling to 85% from last month’s 90% value. [Note that since economic data are released with a lag, the March report includes some data from February.] While several labor market indicators improved, there were declines in the recovery of real wages, consumer spending, industrial production, durable goods orders, exports, and all the housing market measures. Interestingly, housing starts, which in December had exceeded their pre-recession level are now well below that mark.
Recovery Progress by Economic Variable
Notes and methodology: All data are seasonally adjusted monthly values. Variables 4 through 9, and 13 are data from March; all others are from February. Example calculation for economic variable #1, real income less government transfers fell 8.1% from its February 2020 value to its low point in April 2020. In the latest available report, the variable was 2.5% below its peak value. Therefore, it has recovered 69% of the loss. Data Sources: #1, 2, 3, 12, 13: Bureau of Economic Analysis; #4, 5, 6, 7, 8: Bureau of Labor Statistics; #9: U.S. Employment and Training Administration; #10: Federal Reserve; #11: Bureau of the Census; #14, 15: Bureau of the Census and U.S. Department of Housing and Urban Development, #16: National Association of Realtors.
Be Wary of the Impact of Pent-Up Demand
One clear positive in March was the surge in vehicle sales, which are now above their pre-recession level, reaching their highest level in more than three years. However, one must be careful not to read too much into that increase because a good portion reflects the impact of pent-up demand. In short, consumers are now buying vehicles that they did not buy in 2020. The same thing happened with housing starts, which have fallen from a January peak. Previously builders added homes that were not built during the worst of the pandemic last year. But once pent-up demand is satisfied, further increases are less likely.
Total Vehicle Sales (seasonally adjusted annual rate in millions)
The expectation is that the delivery of another round of Federal pandemic relief payments will spur consumer spending on top of the gains from the strong March employment report. Even so, payroll employment is still 8 million jobs below the pre-recession peak demonstrating that the economy remains far from recovered from the most severe downturn since the Great Depression.
Appendix – Recent History of Recovery Scorecard
Note: Historical data are often revised so comparisons with earlier RCF Scorecards may reflect the impact of revisions.
Monthly Recovery Percentages (May 2020-March 2021)
