BlackRock Investment Institute

Macro insights

Tracking the U.S. Covid-19 recovery

The surge of Covid-19 cases in the U.S., as well as localized flare ups in other countries such as Japan and Australia, brings us back to our first signpost we are using to track the Covid-19 shock: how successful economies are at restarting activity while controlling the virus spread.

New U.S. Covid-19 fatalities per million of population, March-July 2020

Sources: BlackRock Investment Institute and The COVID Tracking Project. Notes: The chart shows new deaths from Covid-19 per million people in the U.S. and certain states, as a seven day moving average.

Covid-19 deaths in the U.S. have started to tick up again, driven by several Sunbelt states where new fatalities have surpassed prior peaks. See the chart above. This suggest the restart could be interrupted. Texas and Arizona have introduced new distancing measures and California – the largest state economy – has returned to a state of lockdown.

Importantly, consumers can also change their behaviors voluntarily, something we have found has a greater impact on activity than government measures. A pick-up in various high-frequency data has either decelerated or stalled – often in the absence of new government restrictions. This includes consumer spending in restaurants, clothing and department stores; airline ticket sales; and hotel bookings. These trends are also reflected in Google mobility figures, which appear to be trending downwards since the beginning of July. And Apple driving mobility data have leveled off in states with rising hospitalizations.

On the corporate side, evidence of a stalled restart is less clear cut. Slower consumer spending does seem to be affecting small businesses: both small business revenues and the number of small businesses operating have been falling steadily since late June after two months of normalization. However, while hotel occupancy has ticked down in the first week of, it continues to improve on a year-over-year basis. And a number of industrial indicators – raw steel production, railroad traffic, coal production – continue to normalize.

The key question for markets will be the extent to which these virus-related developments impact overall economic activity longer term. As we have stressed, given the unusual nature of the Covid-19 shock, market focus is on the cumulative GDP shortfall over the next few years rather than near-term quarterly gyrations. And, while developments in certain U.S. states are a cause for concern, it’s too early to tell whether they will materially alter the medium-term growth trajectory. Consensus estimates are already adjusting. The most pessimistic forecasters now see GDP returning to pre-shock levels in early 2022 in both the U.S. and the euro area – which is later than previously expected in the U.S. and sooner in the euro area.


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