Keyword for Third Quarter Was Recovery

Source: U.S. Bureau of Economic Analysis (Actual), U.S. Federal Reserve Bank of Philadelphia (Survey of Professional Forecasters).

The contraction in Q2 hit all major industries, including most notably recreation services (such as the arts, recreation, accommodation, and food services industries). Services were generally the hardest-hit industries, but transportation services and durable goods manufacturing other than autos and recreational vehicles (both important sectors in the Quad Cities region) fell by large amounts. Economic losses were broad-based and substantial. In the Q3 recovery, the gains were similarly broad-based, with the sectors with the most significant Q2 losses experiencing the largest Q3 increases 

Source: U.S. Bureau of Economic Analysis

The labor market both nationally and regionally suffered during the second quarter but rebounded somewhat in the third. Unemployment reached 14.7% nationally during April, falling to 11.1% in June and 7.9% in September. Illinois had much higher rates of unemployment, and Iowa lower. Some of these differences were due to structural differences in the economy (Iowa almost always has a lower unemployment rate than Illinois and the nation as a whole). Some were due to a more stringent set of mitigation actions taken by Illinois. In the metropolitan area, the unemployment pattern followed the nation, 15.3% in April, 11.5% in June, and 7.1% in September. The metro area lost 10.7% of its nonfarm payroll jobs in April, recovering about one-third of that by June. Job growth stagnated during the third quarter in the metropolitan area, growing by less than 1% from June to September.

Source: U.S. Bureau of Labor Statistics. Note that the Quad Cities refers to the Davenport-Rock Island-Moline Metropolitan Statistical Area.

The "fast drop, slow recovery" idea plays out when looking at data from the Quad Cities region. We calculate an index for regions showing how well their economies are recovering from the COVID-induced recession. It is called our "Return to Normal" index. It comprises 4 "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). The idea for this index came from regional economic indices developed by the Federal Reserve Banks of Chicago, Philadelphia, and St. Louis. The Return to Normal index consists of four high-frequency indicators. The first is the Dallas Federal Reserve Mobility and Engagement Index, an index of an individual's mobility in visiting retail, recreation, and other venues versus staying home, taken from cell phone data. The next indicator is Earnest Research Aggregate Spending data, taken from credit card transactions processed by many different credit card companies. We also include weekly unemployment claims, obtained from the U.S. Bureau of Labor Statistics and the All Merchants Open index, a measure of how many small businesses were open at any given day collected by the company Womply (the last two of these indicators are available from Opportunity Insights Economic Tracker). We combine these indicators into a single index using a technique called dynamic factor analysis. Many economists have used this technique at the institutions mentioned earlier to derive indices of economic activity.

The region experienced a substantial loss in economic activity in April below its pre-COVID baseline (calculated as the level of activity in the first week of March when COVID cases began to increase dramatically). The worst of the economic crisis occurred in the middle to end of April; then the nation started a slow recovery during the rest of the quarter. By the end of June, the regional economy was estimated to have recovered about 62% of the loss it experienced during the early weeks of COVID. Part of this recovery was likely due to the massive stimulus received in the region. A recent Quad-City Times article reported that businesses in the area received between $312 million and $593 million in Paycheck Protection Program loans. We calculate that the region received around $300 million in stimulus checks. During the third quarter, the recovery slowed down considerably, with the index growing about one-sixth as fast as it did in Q2. At its current growth rate, we estimate that the local economy will not reach Q1 2020 levels until the end of 2021.

As the region moves into the fourth quarter, uncertainty regarding the virus's path, prospects for vaccines or therapeutics for patients, and a further economic stimulus from Washington weigh on expectations for future economic growth. Most economists expect a somewhat more "normal" period of growth, but this may change dramatically depending on the virus and stimulus.

Source Data from Opportunity Insights Economic Tracker,  the Dallas Federal Reserve Bank and Earnest Research, Inc. Calculations by author