Pace of recovery begins to slow

The pace of economic recovery has slowed in the last month, but that is arguably still an impressive result given the surge in coronavirus cases over the summer, and the more recent expiry of the enhanced unemployment benefits. The retail sales figures, which mostly cover spending on goods, posted a solid 0.6% monthly gain last month despite already being above pre-pandemic levels. But industrial production remains well below pre-pandemic levels and housing starts fell back in August. Furthermore, spending on many employment-intensive services remains depressed, which explains why the unemployment rate is still an elevated 8.4%. That recovery could get harder over the coming months, as temperatures drop and easier-to-distance activities such as outdoor dining become less viable in the Northeast. But, supported by continued loose monetary policy and possibly another fiscal relief package, we expect economic activity to continue grinding higher.