Chief Economist Scott Brown discusses current economic conditions.

Amid extreme social distancing, economic activity took a major hit in March and April. The initial rebound in May, June, and July was strong, but partial, and the pace of improvement appears to have slowed in August. The easy part of the recovery is done. It gets harder from here. A few sectors of the economy are stronger than in February (grocery stores, retail auto sales, housing), most are still lower, and some (hotels, air travel, live entertainment) are far from their pre-pandemic levels and are likely to take years to recover.

Consumer spending accounts for 70% of Gross Domestic Product and employment is the key driver of spending. Nonfarm payrolls fell by 22 million in March and April. About half of those jobs were recovered by August. The Labor Department’s recent shift to additive seasonal adjustment makes the jobless claims figures of the last couple of weeks incomparable to previous data (which were under a multiplicative seasonal adjustment, exaggerating the August numbers). However, the unadjusted claims figures have remained relatively high, consistent with prolonged weakness in overall labor market conditions. Proprietary labor market indicators suggest a slower pace of job growth since the August payroll survey. Sales of motor vehicles have improved. Recovery rebate checks and the inability to spend in some areas (restaurants, entertainment, travel) likely helped consumers (those still employed) to pull together down payments for cars, boats, and other big-ticket purchases.

The housing market has strengthened. The shift to working from home has led to a shift in demand. If you’re going to spend more time at home, it makes sense to want more room and a better location. Mortgage rates are low, but prices have risen. Sales of existing homes are constrained by a limited number of homes for sale and elderly residents are generally less willing to relocate because of the pandemic. Sales of new homes are limited by the ability to build them. Lumber prices have risen sharply. There is typically an increase in furniture sales as existing home sales rise, but new residential fixed investment is still a relatively small part (about 3.3%) of GDP. While remote working has fueled housing strength, the pandemic has also put us on the brink of a foreclosure crisis.