Recovery entering more gradual phase

The rapid recovery in activity in May and June means that, after contracting by close to 30% annualised in the second quarter, GDP is already on course for a big rebound in the third quarter. But there are signs that the resurgence in coronavirus infections caused the pace of recovery to slow sharply in July, with the downward trend in initial jobless claims stalling and consumer foot traffic at retail stores levelling off. The latter isn’t in itself a huge concern given that the June data showed retail sales returning to their February level, but other indicators like industrial production and employment highlight that overall economic activity remains significantly below pre-pandemic levels. Overall, the data are consistent with our own view that, as the initial post-lockdown bounce has faded, the recovery from now on is set to be bumpy and much slower on average. That suggest Congress would do well to provide further fiscal support.