Real Economic Activity Points Towards a Potential New Reality


It is virtually impossible to predict what the economy is going to look like on the other side of the crisis no matter who aims at trying. The reality is no one has ever been through day-to-day economic shifts at this level. The stock market appears even more disconnected from main street as the S&P creeps back to pre-crisis levels on a backdrop of 26 million filed jobless claims. Businesses accustomed to steady growth, supermarkets and hardware, are booming, while sit-down restaurants, sports events and the entire travel industry have collapsed. Oil has recently traded in negative territory as we fast approach a likely low-demand summer travel season. Retailers would normally now be ordering for the holiday shopping season, but short of a zero-based approach, buyers are sitting on little-to-no ability to project demand, much less if a second eruption of Covid-19 in the fall will cause another shutdown.

In reality, consumers are still spending money, albeit much less and in different ways. In spite of how tough it is to estimate where GDP is heading, the New York Fed's Weekly Economic Index (WEI) is perhaps one of the more insightful efforts. Using 10 daily and weekly indicators (see below) that are "timely and relevant high-frequency data" of "real economic activity" covering the labor market, production and consumer behavior, the index is scaled "to align with the four-quarter GDP growth rate." As of April 23, the index plummeted to -11.70% versus 1.58% week ending February 29. If the economy continues its current path, we could be facing a Q2 year-over-year plunge of -11%. As a reference, during the Great Recession between December of 2008 and August of 2009, weekly declines in the WEI ranged between 3-3.8% with average real GDP dropping -3.25% over the same timeframe. If we persist at the current level, the WEI effectively points at a recession that could be 3x deeper than the Great Recession. 10 data points considered in the WEI:

  • Redbook Research: Same store retail sales average of 9,000 general merchandise stores

  • Initial claims for unemployment insurance

  • Continuing unemployment insurance claims

  • Staffing Index

  • Rasmussen Consumer Index

  • Raw Steel Production

  • Electric Utility Output

  • US fuel sales to end users

  • US Railroad Traffic

  • Federal Withholding Tax Collection

Stay safe and healthy.


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