The economic downturn brought on by the coronavirus pandemic has officially been declared a recession, but National Retail Federation chief economist Jack Kleinhenz said the key question now is how long it will last.
“Will this recession be briefer than earlier recessions? No one has a crystal ball, and just as it can take months to be certain a recession has begun, it can take time to declare when one is over” Kleinhenz said.
While it would be unusual for a recession to last fewer than six months, Kleinhenz said, it is possible that the current one could have already ended with May’s rebound.
“The good news is that the recession may have ended as fast as it started. The bad news is there is plenty of uncertainty on the shape of the reopening of the economy, and the recovery will be slow even if we are no longer in recessionary territory,” he said.
Kleinhenz’s remarks came in the July issue of the National Retail Federation’s “Monthly Economic Review,” which noted that the nonprofit National Bureau of Economic Research ruled last month that the U.S. economy entered a recession in February. The bureau took that long to make the declaration because part of its definition of a recession is a decline in economic activity lasting “more than a few months,” but the organization has taken anywhere from six to 18 months to declare that previous downturns were recessions and has taken just as long to decide if they were over.
The stock market is usually seen as a leading indicator that the economy is recovering from a recession, and it has seen a strong recovery since its February crash, closing out its best quarter since 1998 this week and recovering most of the first quarter’s losses, Kleinhenz said. While that alone would not spell the end of a recession, payroll losses rebounded by 2.5 million jobs in May, consumer spending was up 8.1% and retail sales rose almost 18% month over month, he noted. However, all three categories remain far below last year’s levels.
While citing upward trends, Kleinhenz emphasized that the economic recovery will still be dictated by whether efforts to end the COVID-19 pandemic are successful.
“Before we prematurely celebrate the return of the consumer, the wave of new coronavirus outbreaks spreading throughout the country are a major threat to the recovery,” he said. “These outbreaks are alarming, and if they accelerate will certainly sway consumer and business confidence, taking a toll on output and employment and prolonging the time it takes to achieve a true economic recovery.”
Restaurant sales remain lower
A strong majority of restaurant operators reported lower same-store sales for the third consecutive month, although May’s results represented a slight improvement from the previous two months, according to the National Restaurant Assn.’s monthly tracking survey. Thirteen percent of restaurant operators reported a same-store sales increase between May 2019 and May 2020, up from less than 5% in both March and April.
The improvement in the aggregate May results was driven largely by stronger sales readings in the quick-service and fast-casual segments, although both segments continued to report net negative sales results in May.
Still, the restaurant industry expanded payrolls for the second consecutive month in June as local economies across the country continued the gradual process of reopening. Eating and drinking establishments added a net 1.5 million jobs in June on a seasonally adjusted basis, according to preliminary data from the Bureau of Labor Statistics.
The June increase followed a nearly identical gain in May and represented a significant chunk of the 7.5 million net jobs added to the overall economy during the last two months. However, the nearly 3 million jobs added to payrolls didn’t even represent half of the total restaurant jobs lost due to the depth of the coronavirus lockdowns.
“To be sure, while a two-month employment bounce of 3 million jobs is impressive, it only marks the beginning of a long road to recovery for the restaurant industry,” the National Retail Federation noted. “Indeed, restaurants were hit harder than any other industry during the pandemic and still have the longest climb back to pre-coronavirus employment levels.”