Vital Signs: 7 Vital Facts to Know About the Economy

Introducing Vital Signs

Economic reports containing mixed signals along with highly varied interpretations of the reports are creating a wide range of views on the economy. 

Some interpretations focus on levels noting the currently depressed economic levels.  Conversely, others focus on the trends noting the economic rebound occurring and proclaiming that economic normality is just around the corner.  Based on the questions I am receiving; this is creating confusion and frustration among individuals trying to make sense of the economic environment.  

Taking a page from the medical profession, much like when your vital signs are taken during doctor visits, Solutionomics presents seven vital economic signs below.  They provide a fact-based picture of the economy, both from a levels and trends perspective, leaving the interpretation to a separate Solutionomics series, “Prognosis”.    

Importantly, just as there are a limited number of vital signs taken during a doctor visit, Solutionomics limits the vital economic signs tracked.  This sharpens the focus on the most important economic indicators as opposed to a “data bump” that buries the key indicators among a sea of stats.  This also lessens information overload which may be another factor adding to investor confusion. 

Summary of Current Vital Economic Signs

  • Economic activity remains depressed relative to pre-COVID levels in six of the seven vital economic signs
  • Six of the seven vital economic signs are improving

Employment

1.           Total Jobs Lost

  • The number of people employed is 11.5 million less than before the recent economic downturn.

To provide perspective, the chart below shows the maximum number of jobs lost during the previous five recessions along with the current downturn’s remaining job losses.

  • The current number of remaining job losses remains significantly greater than the five previous recessions. 

Source:  St. Louis Federal Reserve

2.           Monthly Job Change

  • August saw a nearly 1.4 million increase in the number of people employed. 
  • If the economy were to continue adding 1.4 million jobs per month the economy would return to previous employment levels in approximately 8.5 months. 
  • Importantly, the number of jobs added each month is declining meaning the number of months it will likely take to return to previous employment levels will be greater than 8.5 months.

Source:  St. Louis Federal Reserve

3.           Unemployment

  • The unemployment rate is 8.4%, down from a peak of 14.7% in April but up from the pre-COVID level of 3.5%.

To provide perspective, the chart below shows the maximum unemployment rate during the previous five recessions along with the current downturn’s unemployment rate.

Source:  St. Louis Federal Reserve

4.           1st Time Unemployment Insurance Claims

  • The number of 1st time unemployment insurance claims was 881,000 in the week ending August 29th.  This is down from a peak of 6.9 million in the week ending March 28th and up from the pre-COVID level of 211,000.

Source:  St. Louis Federal Reserve

5.           Continuing Unemployment Insurance Claims

  • The number of continuing unemployment insurance claims was 13.2 million in the week ending August 29th.  This is down from a peak of 24.9 million in the week ending May 16th and up from the pre-COVID level of 1.8 million.

Source:  St. Louis Federal Reserve

Gross Domestic Product

6.  GDP Change

  • GDP is 10.2% less than before the current economic downturn.

To provide perspective, the chart below shows the maximum decline in GDP during the previous five recessions along with the current downturn’s decline in GDP.

  • The current reduction in GDP remains significantly greater than the five previous recessions. 

Source:  St. Louis Federal Reserve

Consumer Sentiment

7.           University of Michigan Consumer Sentiment survey

  • At 72.5, consumer sentiment is up slightly from its recent low of 71.8 but remains down significantly from its pre-COVID peak of 101.

Source:  St. Louis Federal Reserve