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Before the recession was even officially proclaimed, top of everyone’s mind was when will the economy recover. And now that it has officially been declared to have begun in March 2020, we are even more focused on the recovery. While our state governors, President Trump and now President-Elect Biden put together committees to work on how to end the pandemic, re-open the economy safely and get the recovery underway, I’ll just be over here tracking the data that tells us how we are progressing. No one can say with certainty when exactly the economy will fully turn around or when the virus will be contained… but by tracking these indicators, we can gain insights into the progress being made and find signs of hope for the recovery along the way.

Note: UPDATED 1/3/2020. I will be updating this post monthly to track progress, so be sure to check back at the end of each month for updated data points.


8 Indicators to Watch For When Will The Economy Recover

Earlier this year, I put together a series of posts on economic indicators to track to find where we were in the economic cycle. It may come as no surprise that these same leading major economic indicators and lagging indicators are what you track to see how we are progressing during the downturn. I have also added a few more data points that report data more frequently to give more real-time insights into the rapidly, changing environment.

If you follow my Instagram stories or are a part of our private Facebook group, Family Finance Moms, you have also been getting the below snapshot with an explanation each Monday as a Monday Market Update. Think of this regularly updated blog post as the Monday Market Update on steroids. Seeing how these indicators track overtime, how they are trending, and how they are moving together are the best way to get a feel for when the economy will recover.

What Does the Stock Market Say About When the Economy Will Recover

The stock market gives us the most real-time data of any economic indicator out there, with investor sentiment and headlines being priced in on a minute by minute basis. But it is also the most volatile…

In economic times like these – and add in a Presidential election year on top of it – volatility increases dramatically. The market tends to trade more on overall economic news, than individual business performance, making great buying opportunities in individual names who get overly penalized.

The stock market peaked on February 19, 2020, before entering into an extremely rapid decline. In just a month, it lost 34%, $10 trillion of market value. Through early June, it had almost entirely bounced back, and reached within 5% from its February highs… and in August, it finally hit new highs. However, rising case counts and political uncertainty put us in a new drawdown through September and October. Post-election, the market has hit all-time highs, but continues to experience volatility.

All stock market indices closed 2020 at all time highs – something I don’t think any one would have predicted given the events of 2020. Remember: the stock market is NOT the economy. It is a leading indicator of the economy, and reflects where investors think corporate earnings will be in the future.

It’s important to note as well, that’s there’s a bit of a tale of two markets happening right now. In 2020, the S&P 500, representing the 500 largest market cap stocks in the US, was up +16.3% since year-end, the DJIA, representing the 30 largest market cap stocks was up only +7.3%, while the NASDAQ, fueled by technology and biotech stocks, ended the year up +43.6%.

This divergence in performance is even more dramatic when you look at the components of what many refer to as FANG – Facebook, Amazon, Netflix and Google. Amazon and Netflix were up 60% or more in 2020 as big beneficiaries of stay at home orders and quarantine, while Facebook and Google saw their year-end performance muted due to pending litigation and future regulatory concerns.

I continue to warn investors to be cautiously optimistic. Relative to past recessions, this has been an extremely fast market recovery – one which while it has manifested in the stock market, isn’t yet supported by company’s actual underlying earnings in many cases, putting stock valuations at all time highs. Historically, market drawdowns have lasted the better part of a year, and this one only started in February. The market remains volatile and highly sensitive to less of the current economic reality, and more the health data and future expectations for recovery.

Until we have 1) certainty around a vaccine, its distribution, and widespread adoption, as well as 2) political certainty – 2 Senate seat run-offs in Georgia this week will determine what party controls the Senate, I fully expect the market to remain volatile. Currently, the market is pricing in a full economic recovery in the latter half of 2021, with a split Congress (Democrat-majority House, Republican-majority Senate) – should either of those predictions fail to materialize, I expect the market to sell off accordingly.

What Does the Health Data Say About When the Economy Will Recover

While economic recessions are in fact a normal part of the economic cycle, what initially triggers them often varies and isn’t always normal or predictable.

Related Post: Coronavirus & The Economy

Today’s economic downturn was brought on by an abrupt shutdown of businesses imposed state by state, and in some cases county by county, due to recommended social distancing measures as a result of Covid 19. As such, tracking what is happening in terms of the virus – how many new cases and lives lost – is relevant as our state and federal leaders make decisions about re-opening the economy.

While the spike which began in June has subsided, the Fall and return to school has caused a new increase in cases. The severity of outbreaks and elevated case levels still varies significantly by state. Here in Connecticut, which spiked in March and April and has since kept new cases at among the lowest level in the country, our Governor has instituted a travel quarantine for anyone entering from 46 states, based on any state with a greater than 5% positive test rate (number of positive tests relative to the total tests given daily). However, here in Connecticut we are now seeing case levels surpassing those of the Spring, as is the most of the country.

Nationally, despite higher levels of testing than ever, the positivity rate is approaching near triple the advised 5%.

Some medical experts are optimistic the virus may be weakening, with those infected not becoming as sick, fewer patients needing ventilators, and as the data shows, while cases have increased, deaths were continuing to decline… though are beginning to increase again. The latest concerns, however, are the mutation of new strains of the virus, which appear to be more easily transmissible, if not more deadly.

On the good news front: last month, the FDA approved emergency use authorization for both the Pfizer and Moderna. These vaccines are already being distributed nationwide to healthcare workers and those in assisted living facilities. States are charged with overseeing further distribution to the elderly and essential workers next. Two additional vaccine candidates – from Johnson & Johnson and AstraZeneca – are expected to request FDA EUA approval as soon as February. However, it is important to note that it will take several months for enough of the population to be vaccinated before mitigating actions, like social distancing and masking, can be eliminated. And then, only if enough people receive and choose to take the vaccine.

Because there has been much debate in the media around the dangers of this virus and the potential for overwhelming our hospitals (again), I wanted to share some data around those metrics as well for all of you. While the hospitalization rate relative to cases is most certainly down, cases are higher than ever, and hospitalizations have returned to their highest point. Hospital capacity varies dramatically on a local level, and there are states and local areas already being stressed again. I have seen reports that there are some areas with zero ICU capacity following the holidays.

There has also been much discussion around coronavirus vs. the flu. We don’t shut down or mask up for the flu every year – what makes this different? The table below represents the leading causes of death annually in the United States. Currently, with really just 9 months of data, Covid-19 sits at #3. And yes, while the mortality rate has fallen by more than half since the Spring, it is still nearly 20x higher than the flu.

What Does the Yield Curve Say About When the Economy Will Recover

Most of you are familiar with what the stock market is… but what about the yield curve? A yield curve plots the interest rate of a single credit issuer at varying maturities: in this case, the credit issuer, or debt borrower, is the US government. And they have lots of bonds outstanding at all different maturity dates.

In normal, economic times, yield curves slope up and to the right, with higher interest rates associated with longer-dated maturities given the greater risk associated with more time. When investors start to get nervous about the economic outlook, they sell out of equities in favor of safer, securities, like US treasuries. This pushes the price of the bonds up, and the yields down, while short-term securities, which are more closely linked to the Federal Funds rate stay elevated, resulting in an inverted, or downward sloping curve. This makes the yield curve a good leading indicator for recessions.

Related Post: What Every Borrower Should Know About Why Interest Rates Change

In the Q2 2019, the yield curve inverted – signaling that many investors thought the economy was weakening and headed for a slowdown. The Fed responded by cutting rates in July (from 2.5% to 2.25%), and again in October (to 1.75%).

Then, on March 15, 2020, to aid the with the economic impact of the social distancing shutdown, the Fed held an emergency session and dropped the target rate to effectively 0%.

We have been in a low-interest-rate environment for a very long time, historically speaking, which gives the Fed little room to maneuver rates to help stimulate the economy. Fed policy basically dictates the short-term yield portion of the curve. Longer-term rates are set by bond market investors.

The actions of the Fed in March, restored the yield curve to a more normal, upward sloping curve, but we need to see spreads (difference between short and long-term rates) expand more and the slope increase further for true signs of economic recovery. In early June, we saw Treasury yields rise to their highest levels since the Fed cut rates, as the stock market rallied. This pushed the curve up, increasing the slope and the start of semblance of normal! However, with rising cases and prolonged expectations for the recovery, we saw yields drop, with mid-term yields (2-10 years) hit their lowest levels ever recorded in early August.

This Fall, we have again started to see the yield curve increase its slope, a hopeful sign of a more sustained economic recovery. However, it is important to note that the Fed has repeatedly said they do not plan to raise short-term lending rates for the foreseeable future. In fact, the Fed has promised to keep the overnight lending rate at effectively 0% until the unemployment rate has recovered (4% is considered full employment), even if that means allowing inflation to run above their 2% target for a period of time.

Here’s the overarching concern: US treasury yields, of every maturity, from short-term 3-month T-bills to long-term 30 year bonds, remain at or near historic, all-time lows, nearly 0% across the board.

Note in the chart above how short-term rates drop precipitously leading into and through recessions. This is directly in response to the Federal Reserve cutting its rate, and is intended to stimulate the economy – to make credit more affordable and more available and help businesses recover. Yet, every recession, rates never seem to return to previous levels – leaving less room for stimulation in future downturns.

This is especially concerning today when the Fed has indicated it plans to keep the overnight lending rate at or near-zero for years. It essentially removes a major tool from the economic arsenal should the economy stumble in its recovery over the next 12-24 months.

What Does the Unemployment Rate Say About When the Economy Will Recover

Unemployment is a lagging economic indicator. It spikes dramatically during recessions, effectively confirming the start of a recession before a recession is even officially declared by the National Bureau of Economic Analysis.

The official national Unemployment Rate is released monthly by the US Bureau of Labor Statistics. The November Employment Situation was released on Friday, December 4. Total nonfarm payroll employment increased by just 245,000 in November, just 1/3 of the jobs added the month prior, marking a continued slowdown in the labor market recovery, while the unemployment rate dropped just 0.2% to 6.7%. However, if you account for underemployment and those workers marginalized from the work force (known as the U-6 rate), the rate is 12.0%.

Unemployment declined for all groups in November, though this recession continues to disproportionately impact women and people of color:

  • Adult men 6.9% (down from peak of 13.5% in April)
  • Adult women 6.4% (peak of 15.5% in April)… but more concerning is the drop in the labor participation rate, now at 55.9%, lowest rate since late 1980s
  • Whites 5.9% (14.2% in April)
  • Blacks 10.3% (peak of 16.8% in May)
  • Hispanics 8.4% (peak of 18.9% in April)
  • Asians 6.7% (peak of 15.0% in May)
  • For the college-educated, this recession is all but over…
    • Less than high school degree 9.0%
    • High School graduate 7.7%
    • Bachelor’s Degree or higher 4.2% – which is near the level considered to be “full employment”

We can get a more real-time view of the employment market through Initial Weekly Jobless Claims, reported by the US Department of Labor, on just a one week lag.

The Department of Labor has reported unprecedented initial jobless claims weekly since March, dwarfing any previously reported highs by as much as 5-10x. However, new claims have mostly been consistently declining since. For the week ending December 26th, the Department of Labor reported 787,000 new jobless claims.

It is however extremely important to recognize this is still extremely elevated. Before March, the single highest week was 695,000 initial claims experienced during the 1980s. The nearly complete and total shutdown of the economy in the second half of March has created more job losses and more insured unemployment than has ever been seen, even in the peak of previous recessions. We had weeks with more jobless claims than total insured unemployment reached in total during past recessions.

The unemployment rate declines as the economy begins to recover… albeit far more slowly than its rapid ascent. The good news??? We were starting to see that happen through the summer. However, rising cases brought about a return to lockdowns and business restrictions that has stalled that progress in the last few months of 2020.

It should be noted that this does not fully capture all those who have lost jobs or income, as not all are eligible for unemployment, hence the disconnect between the weekly numbers generated by unemployment insurance claims and the monthly numbers generated by household surveys. You can see this most clearly in the 3.6% insured unemployment rate vs. the 6.7% unemployment rate (or 12.0% U-6 rate).

What Consumer Spending Says About When the Economy Will Recover

If you recall from our past discussions of GDP, 70% of it is based on consumer spending – that’s you and me out there in the economy buying food, clothes, cars, you name it, and services.

In March, when the entire country basically closed all but essential businesses, retail sales came to a screeching halt. In most recessions, it typically takes longer for retail sales to so significantly drop. The US Department of Labor reported April 2020 retail sales down 16.4% from the month prior. However, we have seen a strong bounce-back through the summer and fall. In August, retail sales were up again +0.6% from July, and even up +2.5% from August 2019, recovering to $538 billion. This upward trajectory continued into September, with sales up +1.9% vs. August, with many attributing it to delayed back to school spending. But the spending growth slowed significantly in October, and actually declined in November (-1.1%).

Like unemployment, the complete and total shutdown of non-essential businesses dramatically impacts retail sales. After two months of dramatic declines in March and April, summer months saw sales bounce back in all previously impacted categories, with Auto and Restaurants seeing the most significant recovery. September saw a strong recovery, particularly in Auto and Clothing, with many attributing the strength to delayed back to school shopping. October saw retail sales moderate significantly, with online retailers performing the best. But November saw significant increase in lockdowns and business restrictions around the country again, and with it, a decline in retail sales – especially in the Restaurant sector.

Going forward, retail sales may continue to be impacted by the loss of jobs and income. It remains to be seen if this bounce-back continues through year-end, absent stimulus checks and extra federal unemployment benefits.

The moderation in retail sales in November was consistent with a decline in Personal Consumption Expenditures (PCE), down -0.4% in November. This as Disposable Personal Income declined again as well, -1.2%, and savings rates remain elevated in the face of continued economic uncertainty.

What Does Inflation Say About When the Economy Will Recover

I’ve gotten many questions about whether inflation is a concern right now given how much money is being pumped into the economy by the government and Fed right now.

Typically, in a recession, we see inflation, as measured by the change in the Consumer Price Index (CPI) slow down and even decline, particularly when there are asset bubbles, like we had in 2008. The exception to this was the 1970s when stagflation (rising inflation and unemployment) was rampant due to bad actions by the Federal Reserve.

Related Post: What Happens In a Recession: A History of 5 Major Recessions of the Last 100 Years

The Fed, as a result of the 1970s, now not only uses policy to target unemployment, but also inflation, and will closely monitor changes in the CPI. This will determine how quickly they raise the Fed Funds rate, and even begin selling the debt securities they are currently purchasing in order to stimulate the economy, to reduce the money supply and combat any signs of excessive inflation.

November continued to see below-normal CPI growth of 1.2%, below the 2% Fed inflation target. However, this continues to be driven largely by a marked decline in energy prices, led by the underlying energy commodities which declined double digits, while food prices continue to escalate.

There has been some debate over the need for the Department of Labor to adjust their CPI basket given family’s realities right now – fewer people are commuting while more and more people are eating at home and shopping at the grocery store, for example. Therefore, the decline in energy prices isn’t offsetting the overall price increase households are feeling as much as CPI may indicate.

Watch moves in the CPI for signs of rising inflation, which can force the Fed’s hand at raising interest rates, hampering growth and the economic recovery. However, the Fed has also tempered these concerns by saying they will allow inflation to run above 2% in the short-term to achieve a long-term average in line with its 2% target.

What the Housing Market Says About When the Economy Will Recover

Historically, the housing market slows during recessions – fewer new homes are built and housing inventory builds, with homes taking longer to sell. Home prices hold up fairly well except during financial crises, like 2008 and the 1991 savings and loan crisis.

The US Census Bureau via the Department of Housing and Urban Development reports a series of metrics around new construction, including permits (granted before construction begins), starts (once ground is actually broken), and completions. Starts often fall before a recession officially begins, and bottom out at the end of the recession before gradually recovering. New housing starts dropped by 30% in April 2020, following a 19% decline in March, as quarantine brought construction to a halt in many areas.

But since Spring, the housing market is booming. November starts were up +1.2% vs. October and up double-digits vs. 2019, while inventory continues to remain near record lows relative to sales (just 4.1 months). This supply shortage continues to drive price increases.

Historically, home prices have suffered more in periods of financial crises, like the Great Recession of 2008. So far, through October, home prices are continuing to rise and at rate significantly above historic levels, according to the Case-Shiller Index.

The National Association of Realtors now also publishes Median Sales Prices and Existing Home Sales, monthly. The number of existing homes sold continues to soar, though slowed slightly in November as cases increased again, down -2.2% on a seasonally adjusted basis for November 2020, but still up 26% vs. 2019. Pricing also continues to increase, with the median existing-home price up +14.6% year over year, with price increases in every region nationwide.

The NAR continues to indicate that a general shortage in housing supply is driving price increases, while demand remains robust due to low-interest rates. Since the 2008 Great Recession, new construction has failed to keep pace with household growth, driving a housing shortage and pushing prices up.

Related Post: Is This a Good Time to Buy a House?

In a downturn, the housing market is often aided by the low-interest-rate environment, which makes mortgages more affordable than ever. Today, mortgage rates remain and hit new historic lows nearly every week. However, in the current environment, I am hearing directly from followers who are struggling to get mortgage approvals, even with good credit, solid jobs and down payments, as banks are inundated with small business loan applications or are limited in their ability to extend new mortgages while so many existing mortgages have been put into forbearance.

What Real GDP Says About When the Economy Will Recover

A recession is unofficially defined as 2 consecutive quarters of negative GDP growth. It is officially declared by the National Bureau of Economic Research, who also will declare the peak month, and as things progress, the trough and when recovery begins as well.

So Real GDP is what truly confirms the state of the economy – but it takes a long time for the data to be announced. For Q1 2020, real GDP decreased at an annual rate of 5.0%. For Q2 2020, spanning 3 full months of quarantine, real GDP decreased at an annual rate of 31.4% – our economy was nearly cut by a third – the worst decline ever recorded since quarterly data began to be reported in the late 1940s. And for Q3 2020, ending in September, the economy snapped back, up +33.4% on a seasonally adjusted, annualized basis. For a clearer picture of where we are at in terms of the size of our overall economy after the last 3 quarters, through Q3 2020, Real GDP is down just 3.4% from its peak in Q4 2019.

Take these volatile changes in for a minute. They are massive, representing a nearly $2 trillion decline in GDP in Q2, followed by a $1.6 trillion increase in Q3. The worst single quarter of economic decline in our nation’s history, followed by the best… And we are all still standing on the other side. Hopefully, we all can stomach the ride through 2021.

Coming Up Next…

Below is a schedule of all the data points we are tracking to see when the economy will recover, along with their release schedule. Note the upcoming dates for major indicators as these releases will have the greatest impact on the stock market performance over the coming months.

Look for weekly reports on Initial Jobless Claims and 30-Year Mortgage Rates every week. Big data points to watch for January? Unemployment, inflation, and what happens to virus cases post holidays and relative to vaccine distribution. The single biggest risk to the economic recovery before a vaccine is widely distributed is our ability to contain the virus enough to avoid overwhelming our health system and forcing state and local governments to institute wide-reaching lockdowns.


Hopefully, these data points, along with their historical trajectory, paint a clearer picture for you of exactly how the current pandemic is impacting our economy. And you now know what to watch for signs of when will the economy recover as well. Be sure to save this post and check back each Monday for updates as new data is released.

Save & check back weekly… PIN THIS!

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About Meghan

Meghan spent nearly a decade as a Financial Analyst, before spending the last 7+ as a SAHM to three little ones. She shares simple money tips for moms to help your family reach your financial goals by building a financial plan you can LIVE with! You can learn more about her background in finance, catch her daily on Instagram and Facebook, and her weekly live discussions in her community for Family Finance Moms.

1 Comment

  1. Weekly Market Update 1-18-2021 on January 17, 2021 at 3:17 pm

    […] a more detailed history of all the metics shared, check out When Will the Economy Recover – updated monthly, which gives a more detailed overview of market and economic indicators, as […]

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