High Frequency Economic Indicators

Economists are hunting for alternative indicators of recovery | Financial Times 13/08/20, 6*29 PM
Opinion US economy
Economists are hunting for alternative indicators of

recovery
US data suggest that being allowed to go out and spend is less important
than feeling confident to do so
MEGAN GREENE
After being closed to visitors since March 22, the Florida Keys is reopening to tourists © Andy Newman/Florida Keys News Bureau/AP
Megan Greene JUNE 9 2020
I ordered a thermometer and some hand sanitiser online this week and to my great
surprise both products were immediately available.
That’s not the kind of indicator that would normally signal an economic turning point. But
the precipitous crash of activity in March and April caused by the Covid-19 pandemic
render traditional monthly indicators out of date even before they can be released.
That leaves us economists scouring a plethora of high-frequency, alternative data sources

to figure out where we are and where we’re going. The good news is these data indeed
suggest the crash may at last be bottoming out in the US. The problem is they don’t give us
a clear picture of where the economy is heading or how quickly we might see a recovery.
https://www.ft.com/content/74b8160e-a9aa-11ea-abfc-5d8dc4dd86f9 Page 1 of 3
It’s not just hand sanitiser that offers some hope. The decline in US raw steel production
has abated since the fastest drop in the week of May 20. Railroad traffic has been
improving since mid-April, although it dipped in the last week of May, most likely due to
the national holiday. The four-week moving average for petrol demand has had a strong
bounce since the April lows. US mobility data from Apple offer support, showing more
drivers calling up directions since the nadir in mid-April. At 1.9m last week, initial US
jobless claims remain extraordinarily high by historic standards but they are finally falling.
Barring a second wave of the virus, these data suggest the worst may be over.
That doesn’t mean a recovery is under way yet. So far, we are not seeing any significant
change in high frequency measures of personal consumption, which accounts for just
under 70 per cent of US economic activity. Restaurant booking platform OpenTable does
show reservations in reopened states have increased slightly. Transportation Security
Administration travel data also suggest a gradual increase in the number of Americans
flying. But the Johnson Redbook sales index shows retail sales are still falling. The New
York Federal Reserve’s Weekly Economic Indicator, a compilation of high-frequency data,
fell last week, dragged down by weak consumer confidence and retail sales.
So while useful at identifying turning points, the multitude of high-frequency indicators

have very little predictive power. Bloomberg’s survey of professional economic forecasters
shows annualised gross domestic product in the third quarter of 2020 should come in
somewhere between a 5 per cent contraction and 65 per cent growth — by far the biggest
range I have ever seen.
Other alternative data suggest the rebound from rock bottom will be closer to the low end
of the forecast — a long, hard slog. According to credit and debit card spending figures
compiled by Opportunity Insights at Harvard University, spending patterns in Georgia and
Florida — two of the first states to reopen — look very similar to those in New York and
Massachusetts, which have only recently begun to reopen.
This suggests that being allowed to go out and spend is less important than feeling
confident about doing so. And that’s where the high-frequency numbers fail us. Instead,
the key to forecasting the US economy in a time of unprecedented crisis appears to lie in
figuring out when people will feel confident enough to spend “normally” again.
The weekly Bloomberg Consumer Comfort Index remains near its cycle low, half where it
was at the beginning of the year. But all that tells us is what people think of the economic
situation. It can’t capture individual concerns about catching Covid-19 or describe the
nuances of scarring that people inevitably feel coming out of this crisis. For that we need a
vaccine, or at least therapeutic drugs that will ease fears of a night out leading to a stay in
the hospital. There are many of each under development, and there is a regularly updated
database on their progress — perhaps the most important alternative data source of all at
the moment.
The alternative economic data suggest we’ve at least stabilised and are no longer on
quicksand. Beyond that, given what we have to work with, you can’t put much stock in any
particular economist’s forecast. Although, at last, you can buy hand sanitiser.
The writer is a senior fellow at Harvard Kennedy School
Copyright The Financial Times Limited

2020. All rights reserved.

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Economists are hunting for alternative indicators of recovery | Financial Times 13/08/20, 6*29 PM

Economists are hunting for alternative indicators of

Megan Greene JUNE 9 2020

That leaves us economists scouring a plethora of high-frequency, alternative data sources

So while useful at identifying turning points, the multitude of high-frequency indicators

The writer is a senior fellow at Harvard Kennedy School

Copyright The Financial Times Limited

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