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The U.S. economy is slowly beginning to climb out of its deep hole

November 3, 2020, 5:30 PM UTC

Hidden behind the high-profile news of the election and the pandemic, encouraging signs show how the U.S. economy is beginning to climb out of the deep hole it’s in.

The key word is “beginning.” Compared with nine months ago, millions more Americans are still jobless, and major industries—airlines, hotels, restaurants, much of retail—are still devastated. Most forecasters think we’re at least a year away from getting back to pre-pandemic GDP. Yet progress, largely overlooked, is underway, and the great question is whether it can survive the winter.

Many people might be surprised to learn, for example, that Americans bought more goods in September than they did in February before the coronavirus took hold. They shelled out more on a wide range of stuff—groceries, games, computers, cars, motorcycles, much else. The sudden national obsession with pets wasn’t just anecdotal: Consumers spent 12.6% more on pets and related products in September than in February.

It takes a lot of manufacturing to make all those goods (except the pets), which helps explain why the Institute for Supply Management’s U.S. Manufacturing Sentiment Index, released Monday, was almost shockingly positive. The index hit its highest level since September 2018, when the economy was growing steadily. The new surge in manufacturing partly reflects companies restocking inventories that ran low when some factories were shut down, so you might worry about whether the pace is sustainable. But the index of order backlogs hit a two-year high, suggesting factories will need to keep chugging for quite a while.

That’s good news for jobs. The new ISM employment index crossed from contraction to expansion in October, which means more manufacturers are adding jobs than cutting them. That’s part of a broader trend. “What’s so striking now is that even though the enhanced unemployment compensation ran out at the end of July, the increase in employment has pushed up disposable personal income,” says Mickey Levy, chief economist for the Americas and Asia at Berenberg Capital Markets.

You read that right: Americans had more disposable personal income per capita in September than they had just before the pandemic.

So is there really a problem? Of course there is. While consumers are buying goods and factories are cranking them out with vigor, the services sector is in crisis—and services are the largest part of the U.S. economy. That’s why 10 million fewer people had jobs in September than had them a year previously.

Services include the businesses that bring people together and that the pandemic has hobbled—retailing, transportation, leisure, hospitality, education. They were just beginning to revive when the second wave of COVID-19 began. The danger now is that new restrictions and lockdowns could reverse the economy’s progress. Yesterday, for example, Massachusetts Gov. Charlie Baker ordered a wide range of businesses—restaurants, theaters, hair salons, gyms, and others—to close early.

That means now is a critical moment, and it’s not just because of the election. The trend of the next few weeks may tell us whether the President taking the oath of office in January will face an economy with more green shoots emerging or one that’s wilted and frozen over.