- U.S data suggesting the economic recovery are stalling is starting to pile up.
- While investors have ignored traditional economic measures, these real-time indicators are tough to discount.
- An unstable U.S. economy could make a second wave of coronavirus infections catastrophic.
One of the reasons the U.S. stock market has been able to withstand a barrage of harmful economic data is investors’ willingness to overlook it.
Take the most recent release of U.S. GDP, for example. The economy contracted a whopping 32.9% in the second quarter, but investors shrugged that off because it’s old news. Unfortunately for investors, real-time measures of economic health also pointing to a prolonged recession.
Employment Rate Points to Recession
One of the most common measures of economic health is employment. When people have jobs, they’re willing to spend—a massive driver of the U.S. economy.
The Dallas Fed’s Employment Rate data suggests the bounce back in hiring has leveled off and a recession could be looming.
The employment rate seems to be leveling off. | Source: BloombergQuint
In May, the percentage of the U.S. population that held a job rose considerably as economies reopened and many returned to work. In recent weeks, that figure has stopped growing and has plateaued at roughly 60%. Before the pandemic struck, more than 70% of America’s working-age population was employed.
Mortgage Crisis Piles on Recession Fears
People without jobs struggle to pay their mortgages, so it should come as no surprise that a looming wave of defaults is the second sign of a recession on this list.
Already, one in ten Americans with a mortgage have missed a payment due to the crisis. Sixteen percent of those people say they’re going to struggle to make next month’s payment as well.
A wave of mortgage defaults appears to be on the cards. | Source: BloombergQuint
That’s concerning when you consider that mortgage debt hit a record high of $16 trillion in 2019.
U.S. mortgage debt has ballooned to an all-time high. | Source: Statista
Unlike the mortgage crisis of 2008, when the suburbs were hit hard, this time, city dwellings appear to be under threat. Landlords are struggling to make mortgage payments because their tenants can’t or won’t pay their rent.
Over the past four years, the number of massive loans that went to low-risk, high-income borrowers rose considerably. These so-called “jumbo loans” were too big to have the backing of Fannie Mae or Freddie Mac, and as of mid-June, almost 12% of them were in forbearance.
Weekly Economic Index
To provide the world with a more up-to-date snapshot of current economic conditions, the New York Fed began publishing a Weekly Economic Index. In March, the index fell sharply as the pandemic took hold. It seemed to have bottomed by the end of April.
The Weekly Economic Index’s rebound appears to be stalling. | Source: Barrons
The index steadily increased throughout May, but in the final week of July, it declined by just over half a percentage point.
The index takes into account ten daily and weekly indicators like jobless claims and fuel sales. Even if it’s plateauing rather than declining, it’s still a far cry from pre-pandemic levels. It’s currently hovering around -7% versus roughly 2% back in February, suggesting a prolonged recession could be in the cards.
Small Businesses Are Struggling
Small businesses account for roughly 44% of the U.S. economy and are responsible for almost two-thirds of the jobs created. Their recovery is paramount to avoiding a long and arduous recession—but the figures show they’re struggling to find stable footing.
Small business revenue fell sharply in March and most of April, but as economies reopened in May, those figures began to reverse. In June and July, small business revenue was not only flat, but it was still well below pre-pandemic levels.
Small businesses are already struggling, which could be problematic if a second wave hits. | Source: Barrons
That’s a massive problem as the nation braces for another Covid-19 outbreak in the autumn. Most small businesses are tight on cash, so heading into another significant downturn on the back foot could be the final nail in the coffin.
Reservation data show a decline in table bookings in recent weeks. | Source: BloombergQuint
This downturn is likely more pronounced at restaurants, which already operate on razor-thin margins. According to OpenTable data, the recovery among restaurant reservations across the U.S. has declined significantly in recent weeks as the number of coronavirus cases increased.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.
Last modified: August 2, 2020 4:41 PM UTC
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Author: Laura Hoy