The US economy is closer than ever to ‘back to normal.’ But we’ve still got a long way to go

More than a year after the pandemic began, the US economy is on the cusp of a full recovery. But reaching that milestone still won’t be easy.

CNN Business’ Back-to-Normal Index, developed in partnership with Moody’s Analytics last year, shows the US economy is 90% of the way back to where it was before the pandemic began over a year ago.

The index, which is comprised of 37 national and seven state-level indicators, had bottomed out at around 57% in April 2020.

But despite the immense improvement, getting that last 10% back is going to be hard. The vaccination effort is ongoing and consumers are once again spending money on dining and travel — yet the nation remains millions of jobs short of pre-pandemic levels. Meanwhile many workers continue to feel hesitant about returning to in-person work, and the childcare riddle is still unsolved in many areas where schools and day cares aren’t yet operating at full capacity.

Here’s what needs to happen to get the country 100% back to the pre-pandemic economy.

Gaps in the labor market

The labor market is in an awkward phase of the recovery. The nation has millions fewer jobs compared to before the pandemic, and at the same time, many businesses say they can’t find the workers they need. Economists warn that although most jobs will come back, some have likely disappeared forever.

States that were hit particularly hard — including New York, Nevada and Hawaii — are still trailing the national unemployment rate of 6.1%.

Economists predict many jobs will return during the remainder of the year. The full reopening of in-person schooling in September could also lead to another jobs boost.

But as of April 2021, America was still short 8.2 million jobs compared with February 2020 before the pandemic hit. The hospitality and leisure sector alone — which was worst affected by last year’s lockdowns but has also experienced the strongest hiring rebound — is still down 2.8 million jobs.

Health care, retail and real estate job postings are going through the roof, according to data from LinkedIn that is measured in the Back-to-Normal index. Low mortgage rates have fueled a housing boom across the country.

Meanwhile, executives in the manufacturing industry complain that they can’t find skilled workers.

Businesses across sectors are raising wages to attract employees, and Republicans are arguing that the expanded pandemic-era jobless benefits are the reason workers would rather stay home.

For those at the lower end of the income spectrum, which means earning less than $32,000 per year according to Bank of America estimates, it might make financial sense to stay home given the enhanced benefits. For all other workers, it’s about weighing the risks of returning to a job that might expose them or their loved ones to a virus that is still very active in communities around the country.

It’s down to the consumer

The US economy is driven by people. Consumer spending fuels more than two-thirds of the nation’s gross domestic product, the broadest measure of economic activity.

Consumers are spending more money again, especially on restaurants and travel, where business ground to a halt at one point last year.

Now, the biggest piece of the recovery puzzle is to keep folks spending. Washington’s stimulus checks and expanded unemployment aid helped with that. But data from the Bureau of Economic Analysis used in the Back-to-Normal index shows the national savings rate is still far higher than before the pandemic.

The worry here is twofold: People need to spend rather than save to help get the economy back to normal, but the same time the rebound in spending, along with other factors including a rise in raw material prices, is fueling a jump in inflation.

Some economists worry that prices might rise so fast that they will discourage consumers from spending. That would be very bad news for the recovery, but so far, there are no signs of that happening.

From an investor point of view, stocks remain near record highs. But if the Federal Reserve decides inflation is too big of a worry, the central bank could change its near-zero interest rate policy and put an end to the stock market boom.

All in all, the recovery is chugging along. But it’s based a multitude of moving parts — and a delicate balance that cannot not be upset before things get fully back to normal.