With states around the country gradually reopening from the COVID lockdowns that we saw in March and April, it’s no surprise that activity is bouncing. But how big is the bounce? To keep track of how the economy is performing on a high frequency basis, we have constructed an index based on five variables that are updated weekly: mortgage purchase applications, demand for gasoline, container traffic on railroads, initial jobless claims, and weekly consumer comfort readings. These indices broadly capture activity in housing, vehicle traffic, industrial activity, the labor market, and consumers’ outlook. Using a statistical technique, we identify a shared factor across all three, and compare it to GDP growth. As shown in the chart below, over the long term this index does a decent job tracking GDP growth, though of course it is much more volatile. Some of that volatility is due to calendar effects (see the second chart below, as an example).
Our results show a clear bounce in output over the last month, with the index bottoming at worse than -20% YoY (equivalent to -4% YoY GDP, historically) and rising to -15.5% in the most recent data. That retraces about half of the decline in the index during March and early April. A good start, to be sure, but still indicative of -2% GDP YoY, which would be a grim level of economic activity relative to where the economy sat before COVID hit.
There have been other efforts to track weekly growth that show slightly different results. The New York Fed updates a weekly gauge that takes a similar approach to ours, although with different inputs and a related but different statistical approach. It suggests a much, much more severe decline in GDP: more like 11% current, which is a new low reading for the series and doesn’t show the same kind of bounce our data does. Since the Weekly Economic Indicator is presented scaled to GDP, we can use it to back out an estimate of QoQ SAAR GDP growth (which is how GDP is typically reported). Average YoY weekly growth in Q2 implies a 35% QoQ SAAR drop in Q2 GDP, and no real improvement in that number during recent weeks. Believe it or not, that -35% number is actually pretty optimistic compared to other growth trackers. For instance, the Atlanta Fed’s approach suggests QoQ SAAR in Q2 around -42%! In our view, the WEI data is probably an over-estimate of the negativity for Q2 output changes versus Q1, but our own tracker is probably a bit optimistic with its -3% YoY GDP equivalent. Activity is very likely bouncing, but it’s got an absolutely massive hole to climb out of. Start a two-week free trial to Bespoke Institutional to access our full research platform and our unique investor tools.