The World Has Changed And So Has How Economic Data Is Consumed
Coming into this decade there was a lot of excitement on how the world would change by the rapid technological advancements we have seen. However, nobody forecasted that the world would change right at the start of the decade and not by technology, but by a virus. There is no denying that human behavior has changed, and it is likely that things will never return exactly the way it was prior to COVID-19. It is no different for the way economic data is consumed by investors and other professionals.
Prior to COVID-19, economist and investors relied on the quarterly GDP numbers to provide a gauge on the health of the economy. This was considered sufficient, very timely and useful. Markets would react to the news in anticipation of what the Fed would do considering the new data point. However, today the quarterly GDP number is considered stale and useless because things are changing so quickly in the economy. The latest release on April 29th showed the US GDP shrank 4.8% in the first quarter of 2020, yet the S&P 500 rallied 2.66% on that day. The markets looked right past the once highly anticipated GDP number and rather focused on data points that were considered timely.
Today, the markets care about three factors:
- News on a COVID-19 vaccine or news on drugs that can help treat it
- Trends on COVID-19 infection and death rates
- Timely data points on how the economy is beginning to open back up and how people are behaving considering the new environment
News on a COVID-19 vaccine or treatment is timely and we have seen markets rally and selloff depending if the news is positive or negative. Trends on infection and death rates are also timely and released daily. The challenge has been timely economic news. To make up for the lag on economic data, the private and public sectors have developed new metrics that are more useful than the traditional numbers.
Many people use Apple cellphones, which allows the company to collect timely data points. Apple developed a Mobility Trends Report that features daily changes in requests for directions by transportation type for all available countries/regions, sub-regions, and cities.
We can quickly see that people in the US are beginning to drive and walk at levels not seen since the start of COVID-19. This is great news because it shows as states are opening back up, people are reverting to previous behaviors, which is a positive step to getting the economy back on track.
Google offers Community Mobility Reports which provide chart movement trends over time by geography, across different categories of places such as retail and recreation, groceries and pharmacies, parks, transit stations, workplaces, and residential. We can see that the latest trend for retail & recreation is -26%, but trending in a positive direction. Again, the goal is to illustrate the health of the economy in a timely matter and it shows things are beginning to look better.
The Federal Reserve Bank of New York now has a Weekly Economic Index (WEI), an index of real economic activity using timely and relevant high-frequency data. It represents the common component of ten different daily and weekly series covering consumer behavior, the labor market, and production. As seen on the charts below, it appears the worst part is behind us.
We will continue to monitor the three factors discussed and use timely data points to help us navigate through the current investment environment. There is no doubt that the market dislocation has provided investment opportunities that do not come along every year and we are ready to capitalize on it.