In a week when leading forecasters boosted their view of the U.S. economic recovery, data on retail store traffic, small business hiring and other high-frequency indicators largely worsened, signaling a potential decoupling in which growth presses ahead while the job market slows to a painful crawl.
Federal Reserve officials on Wednesday projected a much smaller economic hit from the COVID-19 pandemic than initially expected, with U.S. output forecast to fall 3.7% in 2020 instead of 6.5%, as was forecast in June, a difference in dollar terms of more than $1.5 trillion. That stronger outlook came alongside upgrades from Goldman Sachs and others.
But Fed Chair Jerome Powell also said that restoring job markets will take time in an environment when some of the country's main job generators - small businesses and labor-intensive service-sector firms - face the stiffest challenges from the coronavirus-triggered recession.
With parts of the economy showing steady recovery, measures of visits to retail outlets and other indicators dropped back after a Labor Day rush to stores and restaurants in early September.
Data from cellphone tracking firm Safegraph, which estimated that retail traffic had nearly hit pre-pandemic levels over the holiday weekend, fell a full six percentage points last week. Similar data from Unacast also declined.
Information on seated restaurant dining from OpenTable dropped, as did hiring at a sample of small businesses whose time records are maintained by Homebase.
Information from Chmura showed a rise in new job postings, and data kept by Kronos on shifts worked at a variety of industries showed a smaller holiday-related decline than the year before.
But there is concern the momentum of the recovery may be fading when it comes to employment even if the blow to output is smaller than first feared and some parts of the economy like housing are roaring back to pre-pandemic levels.
Since the 1980s it has taken progressively longer after each U.S. recession to regain the jobs lost in the downturn, and by most measures this one involves an even deeper and more complex shock than other downturns.
Gross domestic product, the broadest measures of the value of the goods and services produced by people and companies, has tended to rebound more quickly, influenced by productivity, investment, and other factors.
This recovery has started fast, adding 10 million jobs in the four months from May through August, a pace that would restore the labor market to its February levels by early next year. But roughly 22 million jobs were lost, and many economists feel the easiest gains have likely been achieved.
Weekly new unemployment claims stuck above 800,000, roughly double that seen during the 2007-2009 recession, point to an ongoing problem.
With around 12.6 million people continuing to collect unemployment benefits in the week ended Sept. 5, "the magnitude of regular continuing claims is dire," Indeed Hiring Lab economist AnnElizabeth Konkel wrote. "COVID case clusters continue to pop up, and businesses continue to close doors, affecting the livelihood of millions. Until this cycle is broken, a complete economic recovery remains out of reach."
With entire sectors like air travel and restaurant dining under pressure, companies reorganizing their work arrangements, and consumers changing their habits, "it is just a very significant reordering," said Randall Kroszner, a former Fed governor who is now a deputy dean at the University of Chicago’s Booth School of Business. "There is going to be an enormous reallocation within the labor market and that is going to take some time" as workers shift from troubled sectors to expanding ones.
So far, between pandemic-related government lending and supplemental payments through programs like unemployment insurance, household incomes have been maintained.
That may not remain the case this fall. Much of that aid has expired, and data on retail sales in August showed an unexpected softness that some analysts fear is the start of a slowdown in spending that could push some businesses into bankruptcy.
Despite the recent upgrade to some estimates of GDP growth, others have shown little change.
A New York Fed index that uses weekly data to forecast where GDP is heading has dropped slightly in recent weeks.
And an Oxford Economics index tracking the recovery across economic, health and social metrics has also been largely flat since late summer.
The longer the health crisis remains unresolved, the harder it will be for those laid off from the most stricken hospitality industries to regain an economic foothold, and the less willing factories and other employers may be to bring back workers if overall demand remains tepid, the consulting firm's analysts wrote.
"We're going to see a kink in the labor market recovery," after a fast take-off, said Oxford economists Gregory Daco and Oren Klachkin, with "60% of the unemployed having been so for more than 15 weeks, the scars ... are increasingly visible."
© 2022 Thomson/Reuters. All rights reserved.