Recovery Scorecard – November 2020

Housing Leads Economic Recovery

Peter Bernstein, Vice President, 312-431-1540 x1515

RCF’s November Recovery Scorecard shows the economy has recovered 84% of its recession loss, an improvement over the 70% recovery recorded in our October scorecard.  [Note that since economic data are released with a lag, the November report includes data released in September and October.]  The housing sector has been the biggest driver of the recovery with building permits and home sales well above their pre-recession levels.  Excluding these two variables, the average recovery percentage is only 75%.  Income and spending measures are about 90% recovered, but payroll employment, full-time employment, and the labor force have recovered barely half of their recession losses. Real GDP, a quarterly measure not included in this scorecard, has recovered 66% of its recession loss through 2020Q3. 

Recovery Scorecard November 2020

A New Disconnect

Existing home sales and full-time employment are normally highly correlated.  But the link between two has broken in recent months.  While full-time employment remains below its pre-recession level, home sales have surged well above that past level.  The chart below shows the percentage change in these two variables relative to their level in February 2020. 

Existing Home Sales and Full-Time Employment: Percent Change since February 2020

The rebound in home sales is driven by two factors.  The first is low interest rates which reduce the cost of home ownership.  The second, more important factor, is pent-up demand.  Many of the homes being bought in late summer and early fall were homes that were not bought during the spring.  For example, in February housing sales were running at an annualized rate of 5.76 million, meaning that if February’s rate of sales were continued for the entire year a total of 5.76 million home sales would be recorded.  By May, annualized sales had fallen to 3.91 million and in October sales climbed to 6.85 million.  But it you look at the entire March to October period, sales averaged 5.43 million, a bit below the February rate.  Thus, while the current level of home sales is well above its pre-recession pace, the total number of sales over the past 8 months is somewhat below its pre-recession pace. 

On the other hand, employment isn’t going to benefit much from pent-up demand.  Employers who cut jobs in the spring aren’t going to hire more workers in the fall to make up the difference.  In fact, the rebound in employment has slowed as many of the past job losses have turned from temporary to permanent.  Averages aside, a true recovery won’t be complete until the labor market improves.

Appendix – Recent History of Recovery Scorecard

Note:  Historical data are often revised so comparisons with earlier months may reflect the impact of revisions.