Since our last real-time data report (see "U.S. Real-Time Data: Fertile Ground For A Continued Recovery," published April 30), U.S. economic data continues to reflect an economy on the mend. It supports our forecast that U.S. GDP will surge by a hefty 11.3% in the second quarter, after accelerating by 6.4% in the first, fueled by a faster vaccination rollout and reopening schedule on top of sizable savings and pent-up demand.

But the recovery will face some growing pains. Supply-chain constraints on inventories and near-term labor market shortages (due to the usual suspects, like higher reservation wages, locational mismatch, skills mismatch, and competing unemployment benefits) will likely be a constraint this year as businesses return to normal.

Consumer prices jumped in April, with the headline Consumer Price Index (CPI) topping 4.2% year over year (a 13-year high) and core CPI reaching 3.0% year over year (a 25-year high). We were not surprised. Indeed, we expected to see a spike in inflation as the U.S. economy picks up steam and recovers from pandemic disruptions. As we have noted previously, both the cost-push and demand-pull inflation dynamic the economy is going through is likely a transitory 2021 issue. Outside of volatile food and energy, we have seen unusual bottlenecks in transportation, warehousing, and autos, on top of base effects, while demand for services most sensitive to the pandemic--such as hotels, sit-down restaurants, and air travel--is also building as restrictions and fears ease.

Data in April indicates continued momentum in the second quarter. While gains slowed for a number of indicators in April, with jobs gains moderating and retail sales all softer than expected, we believe this reflects a temporary intermission rather than a long-term trend.

Vaccinations Have Slowed After An April Peak

As real-time data in April has indicated continued strength this year, the pace of vaccinations peaked midmonth at about 3.4 million per day (seven-day moving average), just before Johnson & Johnson's vaccine was halted temporarily. Daily vaccinations administrated then fell to 1.9 million as of May 7. As of May 11, the share of people fully vaccinated in the U.S. was 35%, and the share that has received at least one dose is 46% (chart 1), leading major North American and European countries. The vaccination pace might not be as fast as the first 50% of the population past mid-May, when we consider folks:

• In hard to reach counties,
• Who are hard to convince, and
• Who can't or won't take time off to get the shot.

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Nevertheless, the number of new COVID-19 cases came down in the past two weeks from the small peak at the start of April. The seven-day average number of new cases as of May 11 was 37,000, relative to the peak of nearly 250,000 in January, according to the Centers for Disease Control and Prevention. It appears that we are still on track to get to that greater level of populationwide immunity (70%-90% of the adult population) in July, either by vaccination or from prior infection.

Mobility Is On The Rise

Together with fewer new cases, streets are more crowded in the past two weeks. Google mobility trends improved slightly everywhere in the country, remaining only 6% short of the precrisis level (chart 2). Traffic is also increasing. TomTom data indicates a continued pickup in traffic congestion across the major cities we watch, with Miami reaching 2019 precrisis levels in early May (chart 3). The number of seated dinners rose strongly to 20% below the 2019 average as of May 11 (chart 4). However, we saw big divergence across the country. For Florida and Texas, the numbers of seated dinners have surpassed their 2019 levels. On the other hand, in New York, the number is still 49% lower. A continuing pickup in willingness to go out will support people-facing service consumption, which is one reason inflation is at the center of discussions.

Perhaps owing to general upbeat news on vaccines, folks are getting more comfortable flying. The number of passengers traveling through American airports, although still subpar relative to 2019, has started to improve at a faster pace, with May 10 data the nearest to pre-pandemic levels yet (see chart 5). But consumer sentiments haven't quite improved the way we would have anticipated. Both the University of Michigan's Consumer Sentiment Index and the Rasmussen Consumer Index, while noting an improvement in moods, remain weak and far from precrisis levels (see chart 6). In tandem, overall consumer credit with commercial banks hasn't picked up yet.

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Most Industrial Indicators Continue Their Solid Recovery

Except for the February hiccup from the deep freeze in Texas, demand for industrial supplies continues to recover, and factories are increasing their capacity to fulfill growing internal and external demand. Raw steel capacity utilization was about 3 percentage points short of the 2019 average on May 8 (see chart 8). Railway traffic, after the temporary freeze in Texas, is now above the 2019 average as the trade of goods has steadily recovered (see chart 9). Prices of industrial supplies continue to climb to levels well above their 2019 average as supply chain shortages raise producer costs. Oil prices are above $66/barrel (West Texas Intermediate), which could be a lifeline for the sector, where rig counts have started to increase but remain well under pre-pandemic levels (see chart 11).

Lumber prices in the futures market surpassed their two-year high, creating higher input costs for homebuilders, which erodes profit margins (see chart 12). Mortgage applications have taken a breather, with purchase applications trending lower in the week ended May 3 and registering their largest decline since mid-February (see chart 13). Mortgage rates (30-year) fell to 2.9% for the week ended May 13. The 30-year fixed mortgage rate has fallen since March, when it reached its highest level since June of last year. Both new purchase and refinancing applications increased for the week ended May 8, in tandem with interest rates edging down. The pace of demand outstripped supply in the second half of last year and through January, almost at an unsustainable pace. We expect to start seeing demand reverse to a more sustainable growth pace.

After a year-end surge, applications for new business formations have dipped back and stabilized to their post-April rate of around 40% 2019 levels (see chart 14). However, these new applications are 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.

Jobless Claims Tick Lower While Job Openings Improve

Unemployment claims have finally eased, after holding above 700,000 through April 3. Initial jobless claims, a proxy for first-time layoffs, fell to 473,000 in the week ended May 8, normally a sign that the economy is losing steam and is at risk of slipping into recession. But these aren't normal times (see chart 15). This marks a new cycle low since the pandemic hit the U.S. in March 2020 and, in fact, suggests that the relatively soft April payrolls report will likely be followed by blockbuster jobs reports in May. While claims have declined sharply since last April, they remain historically high. The high during the Great Recession was 665,000. Continued claims, a proxy for the stock of claimants, were 16.8 million in the last week of April and have remained between 16 million and 20 million (averaging 17.9 million) in 2021.

While the ranks of benefit claimants through regular state programs have continued to decline, the number of individuals under the Pandemic Emergency Unemployment Compensation (PEUC) program and the Pandemic Unemployment Assistance (PUA) program has risen since the beginning of the year when the programs were extended (see chart 16). (Under PEUC, those who have exhausted regular state benefits are eligible for up to 53 weeks of extended benefits.) The extension of unemployment benefits by the federal government has been very important in minimizing disruption in consumer spending, especially in lower-income households.

That said, real-time data on job openings indicates a surge in labor demand. Postings on Indeed, a job-search site, are now 24% (in late April) above where they were in February 2020. The pace of growth in job postings has accelerated in recent weeks and is now higher than the summer of 2020 hiring rebound (see chart 17). Still, the distribution of employment gains since the start of the pandemic remains skewed to high-earning workers. Employment for high-earning workers has been above precrisis levels since February (as of April 2, the latest available), middle-wage earners are 3.7% below, and low-earning workers remain near 27.9% below, according to tracktherecovery.org.

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