How much longer until the US economy is back to normal? This new index shows we have a long way to go

Editor’s Note: CNN Business and Moody’s Analytics have partnered to create a Back-to-Normal Index. The index shows which states are closest to and furthest from returning to their pre-pandemic economies. Mark Zandi is the chief economist of Moody’s Analytics. The opinions expressed in this commentary are his own.

We’re coming up on six months since Covid-19 turned the world upside down. We are adjusting, but few things feel normal. Certainly not in our daily lives. Most of us are wearing masks and social distancing, while our favorite sports teams play in empty stadiums and arenas. Our work lives are hardly typical, either. Lots of us are unemployed, and many of us fortunate to have jobs continue to work from home.

How far from normal are we? And how much progress are we making toward whatever “normal” will mean in the future? These are tough questions, but CNN Business and Moody’s Analytics have teamed up to take a crack at answering them with regard to the economy.

How close to normal is your state? Click here to explore the index

The US economy remains far from normal. That’s the bottom line. Based on the Back-to-Normal Index that we constructed, the US economy was operating at only 78% of normal as of August 19. “Normal” for our purpose is the economy as it stood prior to when the pandemic struck in early March. Economic activity nationwide is down by almost one-fourth from its pre-pandemic level — far from normal.

As bad as that is, it is substantially better than the darkest days of the pandemic in mid-April, when we were unsure how contagious or virulent the virus was. Nonessential businesses in much of the country were shut down, and most of us were sheltering in place. Our Back-to-Normal index hit its nadir of just 59% on April 17.

The economy rallied between mid-April and mid-June as businesses reopened, but it is clear they opened too quickly and reignited the virus. The economy has gone more-or-less sideways ever since. It’s not difficult to connect the dots between the pandemic and the economy’s performance. Some states had to backtrack on reopenings, and businesses and households everywhere have turned more skittish. The chart below shows how our Back-to-Normal Index stalled this summer, around the same time that coronavirus cases were surging.

How we created the index

Our Back-to-Normal Index combines 37 indicators, including traditional government statistics and metrics from a host of private firms to capture economic trends nationally and across states in real time. The government statistics cover retail sales, industrial production, durable goods orders and housing starts, to name a few. Private contributors to the index include Zillow for home listings, OpenTable for restaurant bookings, Homebase for its measures of hours worked at small businesses, the Mortgage Bankers Association for data on applications for mortgage loans, the Association of American Railroads for rail traffic, and Google, whose cellphone-based mobility data is a window into how actively people are shopping, going to work and venturing out to play. (Read the full methodology here.)

The Back-to-Normal Index goes beyond the typical measures used to judge how an economy is doing, such as GDP, employment and unemployment, to provide a comprehensive understanding of how businesses and consumers are responding to the pandemic.

Which states are closer to normal?

Meanwhile, our state-by-state Back-to-Normal indices provide further insights into what the pandemic is doing to regional economies. The broad, densely-populated New York City area was hit first and hard. At the low point in that region’s economy in mid-April, it was operating at near half of normal. Especially stringent shelter-in-place rules were in effect. And they worked. Infection rates in the region are now among the lowest and most stable in the country, and the regional economy has come back. New York state’s economy is still operating below the rest of the nation, but New Jersey’s economy is on par with it, and Connecticut’s economy is doing even better. Other states that locked down hard early on but are now enjoying lower infection rates and stronger economies include Illinois, Michigan, New Hampshire and Rhode Island.

States that were quicker to end shelter-in-place rules and to reopen in the spring have paid an economic price. Our Back-to-Normal indices for Arizona, Florida, South Carolina and Texas indicate that their economies have effectively gone nowhere since mid-May. Hawaii’s economy has the longest road back to normal according to our index, as it’s so dependent on tourists from the US and Asia. But, of course, no one is traveling.

Perhaps not surprisingly, less urbanized farm belt and northern Rocky Mountain economies are faring best, according to our Back-to-Normal Index. South Dakota has the highest index in the country at 93%, as it is so rural and isn’t reliant on industries that have been pummeled by the pandemic, such as tourism or energy. States like Idaho, Montana, Nebraska, Wisconsin, and Wyoming are not too far behind. Of course, this isn’t a green light for these states to let down their guard against the virus. It is clear the pandemic can strike fast and hard anywhere and take the economy with it.

Our Back-to-Normal Index provides sobering answers to how far the economy has yet to go and how much progress it is making on the way.

We have a long way to go and we aren’t getting there very fast. I suppose this isn’t too hard to fathom while the pandemic continues to rage. Meanwhile, we will update you as the data comes in, and we hope to have better news soon.

The Back-to-Normal Index is updated weekly at CNN.com/Recovery. Check back on Fridays to see the latest numbers.

Moody’s Analytics and CNN Business will host a webinar about the index on Tuesday, September 1 at 2 pm ET. Register for the webinar here