Regional Market Summary Q1 2021

Uneven Recovery

Written by Dr. Kenneth A. Kriz, Distinguished Professor of Public Administration, University of Illinois

The economic recovery from the COVID-19 pandemic and associated mitigation measures continued and, in many respects, deepened for the U.S. in the first quarter of 2021 as mass vaccinations started. But the recovery was uneven. Major sectors of the economy remain at least partially shutdown, and many regions still are struggling with virus outbreaks and to get their populations vaccinated.


National economic recovery accelerated in Q1 2021

On the national level, first quarter Real GDP growth came in at a much higher than expected 6.4% (Figure 1). The “output gap” – the difference between real GDP in Q1 2021 and where it was forecast to be prior to COVID – has narrowed considerably. The gap was as high as $2.1 trillion in Q2 2020, but now is less than $650 billion.


Recovery across industries continues to be uneven

The Quad Cities regional economy experienced a second, relatively smaller slowdown starting in December 2020 and continuing into Q1 2021, followed by a period of relative economic stagnation and volatility. Part of this was driven by a continuing divergence in the economic growth of various industries. Manufacturing has continued to recover from its decline during the early months of the pandemic. “Other durable goods” manufacturing, which is one of the sectors that the Quad Cities region depends on heavily for its employment, has continued to grow strongly since last summer. But service growth became flat in Q4 2020 and did not recover significantly in Q1 2021 (Figure 2). Until the services industries are free to grow again, the region will continue to be challenged in terms of its growth prospects.


Unemployment rates continued to fall nationally and in the Midwest region, but rose slightly in QC

The divergence of the Quad Cities region from the national and Midwest trend is apparent in labor market statistics. The recovery in the labor market continued nationally and in the Midwest during the first quarter, with unemployment rate declines (Figure 3). Iowa’s unemployment rate has fallen to within 1% of where it was prior to COVID (3.7% in March 2021 compared with 2.9% a year earlier). Illinois’ rate has fallen but remains high relative to historical levels, at 7.1% in March 2021, over 3% higher than it was a year ago. In the Quad Cities region, unemployment actually rose unexpectedly in the first quarter, with a rate of 5.9% in March 2021 compared with 5.3% in December 2020. Job growth continued to stagnate during the first quarter in the metropolitan area, growing by only 1% from December to March.


Quad Cities return to normal index shows volatility & relatively stagnant economy

This stagnation is reflected in the high frequency index we calculate. The index shows how regional economies are recovering from the COVID-induced recession using "high frequency" time series of economic activity (high frequency means that the data is available more frequently than traditional economic indicators released monthly, quarterly, or semi-annually). We present this for the Quad Cities metropolitan statistical area (MSA – Figure 4).


Moving into 2nd quarter 2021, more hope of reopening economy

The index suggests that the volatility and retrenchment in the regional economy that started in November and December carried over into the first quarter of 2021. There was no clear trend in the high frequency data during the quarter but much volatility. This is perhaps reflective of periods where individuals begin to venture out and buy things locally, but then retreat to their homes when news of outbreaks emerge.

As we move into the second quarter of 2021, there appears to be more hope of reopening the economy and hope that successive rounds of federal fiscal stimulus will bode well for economic growth. Early “nowcasts” of second quarter real GDP growth appear to be in the range of 8% - 11%. Many uncertainties remain, however. Concerns over vaccine hesitancy and the transmission of SARS-CoV2 variants have kept down growth expectations. On the other side of the economic coin, some economists are expressing concern over raw materials and labor shortages, and with the prospect of higher inflation in the near-to-medium term due to the unprecedented amount of financial liquidity provided by the Federal Reserve and the simultaneous infusion of large amounts of cash to the economy from expansionary fiscal policy. So once again, the economy faces a significant “wall of worry” to climb.

Map of the Quad Cities region
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