Top Seven Signs the Economy Is on Its Way to a Recovery

Introduction

The COVID-19 pandemic—combined with state-mandated shutdowns and the disincentive to work created by the $600 weekly unemployment boost—led to a sharp contraction in the American economy. However, as states reopen, the unemployment boost remains expired, and more and more Americans re-enter the workforce as we return to normal, the economy is starting to take off again. Indeed, there are signs it could quickly reach its pre-pandemic roaring status. Here are the top seven signs that the American economic recovery is underway.

1. Unemployment Continues to Plummet

During the initial stages of the COVID-19 pandemic, and in the midst of state shutdowns of the economy, the U.S. unemployment rate skyrocketed to an astonishing 14.7 percent. However, since that time, the unemployment rate has declined for four consecutive months, most recently falling to 8.4 percent.

The drop in the unemployment rate mirrors what has occurred with unemployment insurance claims. During the week of July 25—the last week of the disastrous $600 weekly UI boost—more than 1.2 million Americans filed initial unemployment claims, with the total number of Americans on unemployment reaching more than 15.8 million.

But by September 5, the number of new claims had fallen to just 857,000, or 28.5 percent lower than it was on July 25. And nearly 70 percent lower compared to the number of initial claims during the beginning stages of the pandemic.

This is perhaps the strongest signal that the U.S. economy is moving towards a full recovery. As states continue to bolster the reopening of the economy, more and more employees are going back to work.

2. Job Creation Continues to Gain Momentum

Unsurprisingly, as unemployment falls, job creation has increased. In August, 1.4 million jobs were created, and another one million Americans re-joined the labor force. The number of individuals on furlough fell by nearly seven million compared to July’s numbers, while those on temporary layoffs plummeted by one third. Retail alone added roughly 250,000 positions, with professional and business services (197,000), leisure and hospitality (174,000), and education and health services (147,000) not far behind.

At the same time, average weekly earnings spiked up 5.2 percent compared to the same time last year. And the number of so-called discouraged workers fell by 130,000, or nearly 25 percent. Now, the number of discouraged workers is roughly where we were in 2017. And as of July, the number of open jobs has reached 6.6 million.

Combined with the decline in unemployment, this increase in job creation and labor force expansion points to a striving labor market.

3. New Businesses Are Forming

In June of 2020, approximately 350,000 new business applications were filed. But between July and August alone, more than one million new businesses formed. Overall, business applications are up by more than 62 percent compared to last year. And right now, new business applications are greater than at any point in 2019.

The formation of new businesses indicates that entrepreneurs have confidence in the outlook of the U.S. economy, and are ready to ride the wave of a V-shaped economic recovery.

4. Gross Domestic Product (GDP) is Recovering

GDP estimates are closely following the economic recovery. Indeed, the estimate of GDP by the Atlanta Federal Reserve Bank has more than doubled since July. The estimate for third quarter real GDP growth is now 29.6 percent—even higher than it was earlier this month. At the same time, the forecast of third quarter real gross private domestic investment growth has increased from 23.2 percent to 29.6 percent.

In fact, economic outlook models suggest the U.S. economy will have positive economic growth for 2021, with even the most conservative estimate suggesting the projected growth rate will double compared to prior forecasts. In other models, the estimated growth rate has more than quadrupled.

The rise in projected GDP growth represents a strong macroeconomic indicator of a robust economic recovery.

5. Consumer and Producer Confidence are On the Rise

Recently, the estimate of U.S. consumer confidence increased yet again—making it the third increase in just four weeks. At the same time, the Organization for Economic Co-operation and Development (OECD) estimate of U.S. business confidence has spiked back to pre-pandemic levels.

These estimates follow an actual expansion in economic output. August saw a remarkable increase in U.S. private sector output, with the HIS Markit Flash U.S. Compositive PMI Output Index seeing its sharpest uptick in economic activity since February of 2019. Output increases for services and manufacturing also saw their greatest hikes since early 2019.

Consumers and producers alike are growing more and more confident in the U.S. economy, following the positive trends in actual economic output.

6. The Housing Market is Bouncing Back

The housing market—yet another indicator of economic outlook—is on the rise as well. The National Association of Home Builders (NAHB) saw its housing market index reach an all-time high in mid-August, tying its December 1998 record.

Meanwhile, the value of home loans rose by 8.9 percent in July. With June’s growth of 6.4 percent, that marks the largest back-to-back increase in home loans in 18 years of records, while first time homebuyers are at a 10.5-year high.

Monthly new residential construction is also up, with roughly 1.5 million housing starts and building permits pulled in July. Year-over-year housing starts are now up by an astonishing 23.4 percent.

The national housing recovery is a strong signal that points toward positive economic growth and a speedy return to a red-hot economy.

7. The Stock Market is Recovering

The Dow Jones Industrial Average has nearly recovered to its pre-pandemic levels, while both the S&P 500 and the NASDAQ reached all-time highs in September. While the stock market has rebounded to above pre-pandemic levels in just six months, that stands in stark contrast to the five years it took for the market to recover during and following the Great Recession of 2009. The quickly rising stock market is an excellent signal of continued investor confidence towards a financial rebound.

Conclusion

These seven signs all point to one common trend: the American economy is ready to return to its pre-pandemic prosperity. In some indicators, we’re already there. And in others, the economy is recovering more quickly than analysts and economists ever thought possible. This is largely thanks to the reopening of state economies and the expiration of the disincentive to work created by the $600 weekly UI boost. As long as we continue to move towards a return to normal and hold off on implementing new UI boosts, these positive economic trends will bring us to one of the swiftest and most robust economic recoveries in American history.