As the economy reopens, these three indicators will show the strength of the recovery.

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Each state has started to reopen its economy, which will give us the first real indications of the current economic direction, the prospect of the full impact of the recession and the nature of the recovery. Over the next six weeks, three key areas should serve as reliable indicators for a long-term recovery.

# 1: consumer sentiment and spending

The American consumer has been the strongest pillar of the economy for the past decade. But in March and April, consumer sentiment dropped at an historic rate. Consumers have started to increase their savings and are currently planning to reduce their spending over the next six months (see chart above). As the economy reopens, consumers will give the first clues as to whether they are maintaining this recession mindset or starting to change their behavior.

Historically, there are precedents for consumers to continue their current behaviors or recover quickly. We have seen the emergence of a recession-conscious consumer; that is, a consumer who acts as if a recession is happening, cutting spending and behaving more cautiously, even when economic data shows otherwise.

After the 2007-2009 recession, consumers continued their recessionary behaviors over the next five years. On the other hand, consumers quickly recovered from the recession of the early 1990s, not least because it was seen as a problem. The economy left the recession almost as fast as we entered.

The combination of consumer sentiment and spending over the next two months will give us the first clues to the mindset and habits of American consumers with a fully open economy, which will serve as a benchmark for the growth that will be needed to recovery. economic.

# 2: unemployment and wage growth

The biggest headlines have been around the record level of unemployment. Many assume that there will be an immediate slowdown once the economy reopens. But the real indicator will be the amount that falls.

It is not yet known how many companies will be able to rehire all of their workforce and the number of Americans currently on temporary unemployment who will be able to find their jobs. In addition, almost 50% of the unemployed receive higher government income through the “supplementary unemployment insurance” program and cannot attempt to re-enter the labor market until August, when this benefit expires.

Unlike the employment rate, average hourly wages have increased in recent months. It will be important to keep these numbers healthy for the consumer to recover. We can expect a downward adjustment as low-wage workers return to work, but if wages fall below pre-recession rates, this could indicate that companies are trying to cover costs or losses due to falling demand, even after the economy reopens.

# 3 Manufacturing purchasing managers index

Markit’s manufacturing PMI is one of the strongest economic indicators for industrial production. In April, it fell to 36.9, a record level, precipitated by blockages linked to coronaviruses, and only recovered to 39.8 in May. American manufacturing has experienced significant challenges and recessions over the past decade, but the government has been able to support the industry against a backdrop of strong global demand.

It is safe to assume that there will be a drop in global demand while emerging markets around the world are struggling to cope with the health crisis. Domestic demand will need to balance due to the more limited possibilities of importing manufactured goods due to the global pandemic.

The May PMI did not provide reason for optimism. If the June report shows no further growth, ideally reaching 50 as a benchmark, the manufacturing sector should have a longer recovery path, which means that it will be up to the consumer to lead the economic recovery for the rest. 2020.

Uneven recovery

Once the economy reopens and the second quarter economic data becomes available, there will be enough indicators to light the path to economic recovery. But whatever the results of these indicators, there is reason to believe that the recovery will not be the same across the country geographically or between industries.

Companies should focus on the economic indicators most relevant to their industry and their customers, while recognizing that there is the possibility of additional anomalies that could affect their recovery until the end of 2020.