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The Columbia Threadneedle Return to Normal Index measures progress toward a post-pandemic world.
As the U.S. continues its COVID-19 vaccination program, the Return to Normal Index measures human activity data relative to prepandemic levels. The index is constructed by our data scientists and fundamental analysts and tracks activities in the U.S. including travel, returning to work and school, brick-and-mortar shopping and eating out. By design, the index is focused on measuring components of daily life rather than economic indicators like GDP growth. The percentage level will move closer to 100 as daily life normalizes, and our analysts will update it on a regular basis.
Since our April update, the Return to Normal Index has climbed further, to 72%, fueled by gains in travel, entertainment and a return to in-person schooling. Now that immunity levels are increasing (through a combination of vaccinations and prior infections), we expect to see a continued decline in active cases over the next couple of weeks. As a base case scenario, we expect the index to advance over the month of May as greater immunity and seasonal factors push activity levels higher. If there are no significant setbacks, the U.S. could reach the normal range by August. We're continuing to watch the data on variants in the U.S. If we see a large spike in cases, the momentum carrying the U.S. to our normal range could slow.
Activity numbers won’t all return to where they were before COVID. The index could hit “normal” at a point lower than the 100 level due to continued changes in behavior like working from home and reduced business travel. The definition of the future normal is evolving, and the index’s normal threshold will reflect our data science and fundamental research insights.
What we’re watching:
We’re analyzing the time people spend engaging in a broad set of activities outside their homes. The index components have implications for economic growth, but the primary objective is to monitor how close or far we are to returning to normal life.
Our index suggests that we’re still 28% below pre-COVID activity levels. The levels of component activity vary: the return to brick-and-mortar stores is 18% below its pre-COVID levels and a normal work routine is 23% below pre-COVID. The subcomponent with the lowest level is travel/entertainment: 43% below pre-COVID levels.
What could drive change:
Faster vaccine uptake and falling case levels could accelerate the path to normal (i.e., the upside case). Developments that could impede a return to normal (i.e., the downside case) include the emergence of variants that are resistant to current vaccines or slower uptake of the vaccine in certain places (because of people’s unwillingness to get vaccinated or shortfalls in supply).
“This index provides a framework as we analyze companies,” says Paul DiGiacomo, Head of Equity Research. “It’s a roadmap for what normal activity might look like after COVID and how long it will take to get there. The information allows us to test a company’s own assumptions and make adjustments in our views as needed.”
For investors, the Columbia Threadneedle Return to Normal Index can act the same way: it’s an additional input to consider as they research their individual asset allocation and portfolio decisions.
Bottom line: Understanding where we are on the path to normal life will be a critical question in 2021. This data input can help inform investors’ asset allocation decisions and set expectations on market activity.