Economy snapping back but still has long way to go, alternative data shows

The U.S. economy has shown signs lately that it could be snapping back to life more quickly than many anticipated, but there’s still a long way to go.

May’s burst of spending from consumers who had all but shut down the previous two months helped kindle hopes that activity is returning again from a recession that started in February. Strong housing numbers and record-breaking increases in manufacturing activity for the New York and Philadelphia regions added to an air of optimism.

But many economists these days are looking deeper than the usual suspects of macro data.

Instead, they’re checking “high-frequency” indicators that provide more real-time indications of activity, as opposed to the typical reports that usually lag by at least a month. In the coronavirus era, when the drop in activity happened so rapidly, the need for more immediate indicators has increased.

Some of the more popular metrics include pedestrian, air and auto traffic, credit card spending and restaurant reservations. Others include pollution measures, tanker traffic and sanitation pickups.

Whatever the data point of choice, the story they generally seem to be telling is of faster activity in certain areas and activities, but not enough to send an all-clear signal on where the broader economy is heading.

“My big picture has been more in the slower camp for sure. I think it’s going to be about two years before we get back to pre-Covid levels of activity,” said Aneta Markowska, chief financial economist at Jefferies. “But if you look at retail sales, it looks like the beginning of a ‘V.’ The question is whether that momentum is going to be sustained.”

Markowska has been tracking a slate of high-frequency data and comparing it with 2019 levels to gauge current performance. Those metrics include foot traffic at consumer discretionary stores, roadway congestion, job postings, employee hours at small businesses, web traffic for job posting sites, domestic flights and restaurant bookings. 

In the big picture, she’s found that activity is back to 51% of the 2019 “normal” level, up from the low point of 33% in April. Last week showed substantial increases in flights (35% from 30% the week before) and restaurant bookings (35% vs. 24%). Unemployment web searches are declining, which would be a positive sign for payrolls but job postings at the same time have leveled out. Foot traffic in stores is the closest to normal, at 67%.

The micro data comes amid official signs of a sluggish labor market, with 1.5 million new jobless claims last week and still 20.5 million continuing claims. 

“There’s still a gap in spending and employment trends that certainly don’t support this trend in spending,” Markowska said. “So something has to change. Either you’re going to need to see employment heat up, or you’re going to need more support from fiscal policy.”

Indeed, the…