Several indicators will help predict the shape of economic recovery from COVID-19.

As COVID-19 continues to rattle the U.S. and global economy, many people are wondering what economic recovery will look like.

The V-shaped rebound that many economists had previously expected is becoming less likely. In fact, new economic data has indicated that a K-shaped recovery is unfolding, in which parts of the economy comprised of technology-driven companies are soaring, while industries that rely heavily on in-person services like travel, air transportation, live entertainment, and hospitality are plunging.

While neither the shape nor timeline for economic recovery can be predicted with certainty, economists can look at several indicators that will help drive the healing process.

Employment
Employment metrics typically reflect the economic environment. This was evident in March and April 2020, when economic uncertainty associated with COVID-19 led U.S. companies to reduce their payrolls by a combined 22 million jobs. However, over the next four months as economies reopened and Americans gradually returned to work, many of the jobs returned. By August, the headline unemployment rate, which had been as high as 14.7 percent in April, had decreased to 8.4 percent, while 10.5 million jobs had been re-added to company payrolls.

Looking forward, economic recovery will be determined in large part by the continued rebound in the labor market. There is some cautious optimism afoot. In the next decade, the Bureau of Labor Statistics projects that employment will grow by 162.8 million to 168.8 million. This could slowly strengthen the economy and will more clearly define the shape of recovery in the coming years.

Retail Spending and Food Sales
Annual and monthly fluctuations in retail spending and dining can be good metrics to help measure economic recovery. In March 2020, retail spending scaled down in tandem with the decrease in employment. With millions of people still out of work, many Americans may not feel as comfortable spending the way they have in periods of higher employment.

Additionally, the economic uncertainty resulting from COVID-19 may leave lasting marks on the way people manage, save, and spend money. However, retail spending and food sales will continue to help illustrate the path to economic recovery as it mirrors the confidence many people have in their employment or financial standing.

Airline Travel
In June 2020, U.S. airlines experienced an 80 percent decrease in passengerscompared to June 2019. And considering the hundreds of billions generated by the airline industry, the way people return to air travel will also help define the path toward economic recovery.

An increase in ticket purchases may depend on the timing and availability of a COVID-19 vaccine or the kind of safety measures airlines continue to employ. While the timeline is up in the air, the airline industry has historically been financially resilient from other external factors, including 9/11 and the SARS outbreak of 2003.

Government Response
Federal government efforts to soften the financial blow of COVID-19 to individuals, businesses, and the bruised economy will continue to play a major part in sustaining the recovery.

Congress has already spent more than $3 trillion as part of the CARES Act to help keep Americans financially afloat. They may decide to spend more in financial support depending on the political climate in coming weeks. Although, it’s possible that the long-term economic impact from federal relief packages will take years to be fully realized.

Economic Recovery in the U.S.
The current economic crisis is a direct result of COVID-19 and is one of few caused by external factors. Ultimately, the way the U.S. economy recovers will rely heavily on when COVID-19 will be contained by a vaccine, cure, or a natural slowing of the infection rate.

HilltopSecurities will continue to keep a close eye on various national statistics and the government response to COVID-19 to help determine the path toward economic recovery. To learn more, call 833.4HILLTOP.

Hilltop Securities Inc. (HTS) is a registered broker-dealer, registered investment adviser and municipal advisor firm that does not provide tax or legal advice. This document is intended for educational/informational purposes and institutional use only. This document does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product or service. HTS is a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH) located at 1201 Elm Street, Suite 3500, Dallas, Texas 75270. Member: NYSE/FINRA/SIPC.