Despite the fact that some US states are faced with a growing number of cases of virus infection and a growing share of positive indicators, fomenting random fears of the second wave …
… steady progress in discovery means that overall economic activity continues to come back together. And, as BofA notes in its weekly activity tracking, mobility rates from Google and the Dallas Fed continue to improve …
… with Google data showing an increase in visits to stores and stores, as well as grocery and pharmacy stores.
In addition, data from Homebase and the Census Bureau show that hiring small businesses also continues to grow, although the pace of improvement has slowed:
In addition, demand for housing remains high, as purchase requests work around the January peak.
Aggregated BAC card data suggests that in those states that have relaxed restrictions more than others, consumers are returning to retail storefronts (Figure 5). In addition, the overall spending on cards in these states is higher than in less open ones (Figure 6). Despite these differences in activity, spending is still below levels before Covid in different states. But as more people re-engage in normal daily activities, we see alarming signs that the number of infections is increasing (Figure 7).
Meanwhile, given that news reports focus on growth in individual states, BofA compares activity states with low positive test scores to those with high positive test scores. He finds some convincing evidence that in states where the level of positive tests is relatively higher, there is a slow increase in the number of small businesses opening up compared to those with a large control of the virus.
This may indicate the role that the virus plays in economic activity, although it is also likely that there are many other factors that may explain these differences.
Shopping and vacation spots are faster than a week ago; Meanwhile, the Fed engagement index in Dallas continues to grow gradually, and if the current trend continues, by the end of August the indicator should return to the level before COVID-19. However, this will largely depend on how states can control the virus.
In addition to these two measures of mobility, air transport and demand for gasoline and jet fuel continue to recover.
Air travel has a long way to go before it returns to 2019 levels as businesses return to travel and people remain uncertain about flight. This may mean that driving is profitable because households are replacing driving with airplanes, especially at favorable gas prices.
While the weekly Fed economic index in New York continues to signal that the second quarter after the Second World War is record-high for GDP growth, other high-frequency indicators of economic activity continue to improve. Similar to the weekly Fed reading in New York, the daily San Francisco Fed news sentiment index continues to signal depressed sentiment, which probably reflects the severity of the current labor market shock. This measure underlines the fact that trust, like activity, still has a long way to go before returning to normal.
Labor market and small business activity
Labor market activity indicators remain depressed, but continue to show progress, albeit gradual. Initial jobless claims fell during the tenth consecutive week to 1.5 million for the week ending June 6 (chart 12). Continuing claims also fell slightly from 21.3 million from 20.9 million in the week ending May 30.
Meanwhile, as noted above, recent Homebase data indicate that more and more small businesses are opening and hiring, although the pace of both measures seems to be slowing.
If the reopening can continue its current trajectory, we expect further improvement, since we find a positive relationship between the temporary state that was reopened and the change in% of enterprises opened from Homebase (Diagram 15).
This, of course, is the case when not all enterprises return. The good news is that we are seeing a recovery in the annual growth of highly profitable business applications, which are likely to become a business with employees. Consequently, new enterprises can replace those who ultimately go bankrupt.
According to Homebase data, the latest data from a survey conducted by the Small Business Census Bureau indicate that over the past seven days, the number of enterprises that increase the number of working hours and the number of employees are declining (chart 17).
At the industry level, 13 out of 16 sectors reported a higher proportion of enterprises increasing employment over the past seven days than during May wage week. This is a welcome sign before the June employment report.
The May Industrial Production Report shows that production grew 3.8%, mainly due to the huge growth in automobile and parts manufacturing. However, production remains extremely reduced compared to levels up to COVID-19. This is consistent with what we saw in the high-frequency indicators associated with the sector. Recent data show that steel production has not yet recovered, but rail transport and demand for utilities continue to recover.
In the absence of a serious shock, this data should continue to improve in the coming months, as the manufacturing sector is probably better suited for a faster return than the services sector. Nevertheless, the industry will still have to cope with the massive shock of demand from the virus.
The recovery in the housing market was V-shaped. Deferred demand and buyers leaving cities seeking asylum in the suburbs likely contributed to an increase in the number of MBA mortgage applications that are currently operating near the recent peak level in January. Although this is a bright spot for the economy, it is unsustainable in the long run.
Small business survey
Incentives for small businesses continue to bear fruit, since since March 13 over the past three weeks there has not been a significant increase in the share of small enterprises that missed payment on credit or without credit (Chart 23). As of June 6, only 24.4% of small enterprises did not receive any financial assistance, while more than 71% received a PPP loan (Chart 24). This will probably help keep the balance of small businesses in good condition and help prevent a massive wave of bankruptcies.
State activity level and virus
Next, BofA examines conditions in which the highest proportion of positive tests is observed, and the number of daily cases increases to those in which the lowest proportion of positive tests is observed. The Bank has identified ten states in each group (Figure 25). The discovery probably played an important role, as did the behavior of people in these states. On average, mobility in states with a higher share of positive tests was higher than in countries with a lower positive ratio (chart 26).
This is likely the result of decisions by the governments of these states, which will be open faster than others, in addition to other factors.
Finally, here is a heatmap of new cases in all states showing where situations are better and worse.