Since our last real-time economic data report (see "U.S. Real-Time Data: The Recovery Stalled In January," Jan. 29), coronavirus cases, hospitalization rates, and death rates in the U.S. have continued to ease from their recent highs (see chart 1), though sadly the U.S. also reached a new milestone of 500,000 deaths earlier this week. The pace of COVID-19 vaccines administered slowed to 1.3 million vaccinations per day (seven-day average) last week since peaking at 1.6 million before the weather disruptions across the country (see chart 2). The pace of vaccinations is likely to accelerate given improvement in weather and supply.

Businesses in most states remain open as of Feb. 22, with no states "mostly closed" (Oregon and New Mexico were closed in January) and nine states that previously were considered to be "mixed" now "mostly open" (see chart 3). Mobility measures across the nation slipped following the spike in coronavirus cases around the holidays and have since failed to improve (see chart 4). Mobility levels in the U.S. on Feb. 20 were 29% below precrisis levels, their lowest since June. Mobility improved slightly in Florida, New York, California, and Illinois in recent days, while Texas and its surrounding area, ravaged by the snowstorm, saw mobility levels plunge to record lows.

All told, a widely followed composite indicator of real-time economic activity--from the New York Fed--indicates that recovery slowed in the latter part of the fourth quarter and into February (see chart 5). The Feb. 20 weekly average trend fell below its 13-week moving average--the first time in this recovery. Still, because of January's higher-than-expected activity, first-quarter GDP so far remains better than the average per month in the fourth quarter (see "A Stronger-Than-Expected January Sets The Stage," Feb. 19, 2021).

We have all along expected March to be the best month in the first quarter. If that is how it indeed unfolds, our first-quarter GDP growth forecast of 0.8% is likely going to understate the strength for the quarter. (For more on our December forecasts, see "Home For The Holidays," Dec. 2, 2020.)

Stimulus Has Boosted Lower-Income Households' Spending

Consumer spending in retail stores also slowed in January and February, according to weekly same-store sales data (see chart 6). However, this contrasts with the census-based monthly retail sales data for January, which showed a surge in sales by a hefty 5.3% with broad-based strength. The extension of income support from the December stimulus package, the reopening of the economy on vaccine rollouts, and a strong housing market have boosted prospects for retail sales.

Spending among low-income households surged in early January and has remained strong, dwarfing the lift in spending among high-income households. This highlights the outsize effect the extended federal stimulus has had on low-income families. It is in line with our assessment of the economic gains from fiscal stimulus to lower-income households, which, given their larger marginal propensity to consume, generally spend more of their checks (see "Bang For The Buck: How U.S. Fiscal Stimulus Could Benefit The Recovery," Dec. 15, 2020).

Opportunity Insights' Economic Tracker shows that the effects of stimulus payments signed into law in late December increased spending among lower-income households significantly but had little impact on higher-income households' spending (see chart 7). Government stimulus, including the additional one-time transfer payment of $600, an extended unemployment benefit booster, and the extension of various moratoriums (student loans, housing), raised spending by lower-income households.

Still, despite a drop in infection rates, the fear now is that new variants of COVID-19 may slow the pace of economic activity in the U.S. (and world) returning to normal levels. An increase in the number of cases will put more strain on health care resources and lead to more hospitalizations, and potentially more deaths. Perhaps that's why consumers don't yet see a reason to perk up, with sentiment readings back near April lows (see chart 8). Not surprisingly, air travel continues to struggle while restaurant dining has improved--it is still 47% below year-ago levels (see charts 9-10). Together, they led to fewer credit card swipes, which translated to declining overall consumer credit (see chart 11). Some part of accumulated excess savings may have also gone to paying down debt.

Unemployment Claims Remain High As Job Openings Pick Up Slightly

Moreover, while states have opened, the jobs front remains challenged. In the near term, the virus controls the speed of economic recovery, evident in unemployment claims data, which remain above 700,000, 3x the precrisis levels. First-time jobless claims in the week ended Feb. 20 and continuing claims for the week ended Feb. 13 have declined, though remain elevated (see charts 12-13).

One complication when trying to map claims to the real economy is the extension of fiscal support through March (passed in December in the $900 billion support package) that reinstated eligibility for many unemployed. It is likely that many of the recent first-time claims were by previously unemployed people resuming their benefits, as opposed to those who just lost their jobs.

On the bright side, we have also seen a recent pickup in job openings on Indeed.com after a slowdown heading into 2021 (see chart 14). Job opening gains tipped above the zero threshold on Jan 20 and steadily climbed to a 3.9% pace on Feb 12. Still, the distribution of employment gains since the start of the crisis remains skewed to high-earning workers (see chart 15). Employment for high-earning workers is over 1% above precrisis levels on Jan. 25, middle-wage earners are 6.8% below, and low-earning workers remain 24.2% below, according to tracktherecovery.org.

Industrial Supplies Continue Their Recovery

What hasn't changed in the last 15 days is that demand for industrial supplies continues to recover, and factories are increasingly using their capacity to fulfill growing internal and external demand. Railway traffic is well above 2019 rates as the trade of goods steadily recovers (see chart 16). Prices of industrial supplies have increased in tandem, including oil prices. Oil prices are now above $50/barrel (WTI), which could be a lifeline for the sector, where rig counts have started to increase but remain well under pre-pandemic levels (see chart 17).

After a year-end surge, applications for new business formations have dipped back to their post-April rate of around 20% year over year (see chart 20). However, the composition of these new applications is more likely to be nonemployers, according to a recent Atlanta Fed paper (Dinlersoz et al., 2021), and, with that, less impetus for job creation in the near term.

Home purchase mortgages have also slowed though remain elevated (see chart 21). Demand for homes has outstripped supply, which has led to builders staying busy and optimistic in their outlook. Lumber prices in the futures market remain high, even as they traced back some of the gains in January (see chart 22).

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